Retail sales drop in December; Copper plunges on World Bank view
NEW YORK (MarketWatch) — The U.S. stock market fell sharply on Wednesday, extending declines to four consecutive days, after surprisingly weak December retail sales cast a shadow on the pace of economic growth.
Disappointing results from banking giant J.P. Morgan Chase & Co., a continued slide in commodity prices, as well the World Bank’s downward revisions to its global growth forecast also weighed on equities.
The S&P 500 SPX, -0.83% declines were broad-based, with nine of 10 main industry groups selling off, excluding utilities. Financials and materials led losses.
The Dow Jones Industrial Average DJIA, -1.04% dropped more than 200 points shortly after the morning bell, while all 30 of its components were trading lower. JPMorgan Chase & Co was the top decliner on the index.
Declines on the Nasdaq Composite COMP, -0.57% were modest by comparison, as the tech-heavy index was down 0.7%.
A drop in retail sales, even when you strip out volatile gas and auto components, surprised many analysts, who were expecting a modest rise. But the drop implied that lower gasoline prices are not having a desired positive effect on consumer spending.
“Surprisingly weak US retail sales figures may shed some doubt on the hypothesis that falling gasoline prices will provide a helpful boost (analogous to a tax cut) to consumer spending,“ wrote Rob Carnell, economist at ING Financial Markets in emailed comments.
“More worryingly, with the US about the only beacon of growth globally, if even this engine is spluttering, then a more substantial market correction than we have already seen may well be on the cards,” Carnell added.
Not all analysts viewed the retail sales numbers as outright negative.
“You can expect to read about how the December [retail sales] data mean people are choosing not to spend their gas price windfall, but that view is deeply myopic. The trend in spending is rising strongly, with big gains ahead as the lagged effect of the drop in gas prices kicks in fully,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Increased volatility in the market is raising questions about the future of the bull market, however. The CBOE Vix index, which measures implied volatility on the S&P 500 jumped 8% to above 22.
“The bull market is turning six in March, and now we’re starting to see more volatility pick up. Typically, after a big move, that’s not a healthy sign, said Adam Sarhan, CEO of Sarhan Capital Management.
Crude-oil futures for February delivery trading on the New York Mercantile ExchangeCLG5, +1.11% were higher at $46.20, enduring a volatile session, so far. A bigger concern is copper prices HGH5, -4.37% which began falling Tuesday but have cratered nearly 6% to levels not seen since mid-2009.
World Bank gloom: “The slowdown in Chinese growth is weighing heavily on copper prices at the moment, and the World Bank’s revised forecasts overnight further dampened people’s view on its outlook,” said Craig Erlam, market analyst at Alpari. Copper is viewed by some as a harbinger for the global economy.
On Tuesday, the World Bank forecast the global economy will expand 3% this year, up from 2.6% in 2014, but still slower than an earlier 2015 forecast of 3.4%. The economists also noted that oil prices could provide uneven benefits to big oil importers.
Business inventories are coming at 10 a.m. Eastern. Later, investors will be watching for the Federal Reserve Beige Book, due at 2 p.m. Eastern.
After the close Tuesday, Minneapolis Fed President Narayana Kocherlakota said the upward trajectory in the jobs market is more likely to continue if the Federal Reserve doesn’t tighten monetary policy this year.
Speaking at an event Wednesday morning Philadelphia Fed President Charles Plosser said the U.S. economy has improved considerably and Federal Reserve officials should raise interest rates sooner rather than later in order to get ahead of future inflation. Plosser isn’t a voting member of the Fed policy committee this year.
J.P. Morgan, Tesla in the spotlight: J.P. Morgan JPM, -3.99% fell sharply afterreporting profit and sales that came in below expectations.
Wells Fargo WFC, -0.97% reported a 1.8% rise in fourth-quarter net income as the bank posted stronger loan growth, overshadowing a rise in expenses, but shares fell as the entire sector was dumped.
GameStop Corp. GME, +11.50% jumped after the company said new software sales rose 5.8%, lifted by a 94.4% surge in Xbox and PS4 software. It said same-store sales fell 3.1%.
Ziopharm Oncology Inc. ZIOP, +52.95% and Intrexon Corp. XON, +10.47% announced an exclusive licensing agreement with the University of Texas MD Anderson Cancer Center for the use of next-generation cancer therapies. Ziopharm shares rallied 51%, and Intrexon jumped 8.8%.
Alibaba Group Holding Ltd. BABA, -1.44% said Wednesday it has formed a partnership with one of China’s largest drug makers, Guangzhou Baiyunshan Pharmaceutical Holdings Co., to boost online pharmaceutical sales. It is investing millions in the company, the partners said. Shares fell 1.9%.
Global stocks: The European Court of Justice issued an interim decision that allows the European Central Bank to go ahead with a bond-buying program known as Outright Monetary Transactions (OMT), although with certain conditions.
Still, the Stoxx Europe 600 index SXXP, -0.94% couldn’t stay in the black, dropping 1.2%.
Richard Perry, market analyst at Hantec Markets, said the ECJ’s interim OMT decision leaves the door open to quantitative easing for the ECB, but there is still a possibility of further legal challenges. “This will be quickly forgotten as we move towards the Jan. 22 ECB meeting,” he said.
Asian stocks had a rough session, with the Nikkei 225 index NIK, -1.71% dropping 1.7%. As investors backed out of stocks and commodities fell, the yen — a perceived safe haven — rose against the dollar USDJPY, -1.18% last trading around ¥116.32. The yield on 10-year Treasurys also dropped sharply, down 9 basis points at 1.81%.