Sarhan CNBC: Dow plunges 350, Nasdaq briefly down 3%; gold surges

Monday, February 8, 2016

U.S. stocks fell sharply on Monday as global growth concerns weighed on investors.

Gold futures for April delivery surged 3.2 percent — or $37.60 — to trade at $1,195.30 an ounce, and hit their highest level since June.

“The gold trade is signaling a retreat in global inflation,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “In times of economic stress … gold acts as a store of value.”

He also said that, in order to stem this sharp sell-off, “you’re going to need for some tangible evidence that the global economy is not slowing down, and that’s China.”

Chinese markets are closed this week due to the Lunar New Year holiday.

Crude prices resumed their downward trajectory, with WTI falling 1.5 percent, or 44 cents, to $30.45 a barrel. Last week, U.S. oil fell about 6 percent.

“Like it or not, we use oil as a barometer for the global economy,” said Art Hogan, chief market strategist at Wunderlich Securities.

The Dow Jones industrial average fell more than 350 points in late-morning trading, with Goldman Sachs and Home Depot weighing the most on the index.

The S&P 500 dropped 2 percent, as consumer discretionary and financials led all sectors lower.

“We’re in a very broad-based sell-off. Investors are selling first and asking questions later,” said Adam Sarhan, CEO of Sarhan Capital.

The Nasdaq composite shed over 3 percent as the iShares Nasdaq Biotechnology ETF (IBB) plunged about 3.5 percent, while Facebookand Amazon tumbled more than 4 percent.

“Without something fresh to sort of turn the tide on this, I think the path of least resistance is to the downside,” Wunderlich Securities’ Hogan said.

With no major economic data due Monday, investors were looking ahead to Fed Chair Janet Yellen’s testimony in Congress on Wednesday and Thursday.

“We have the most cautious Fed chair I’ve seen in many, many years,” said Maris Ogg, president at Tower Bridge Advisors. “I think we’re going to get a reiteration … of what we saw in the minutes.”

However, Peter Cardillo, chief market economist at First Standard Financial, said that “if she would hint that wages are rising, but still not at levels that would constitute a rate hike, then that would turn things around.

Concerns of a Fed rate hike took center stage Friday after the Bureau of Labor Statistics said the U.S. economy added 151,000 jobs in January — below expectations — but wages rose 0.5 percent.

“The wage spike we saw in the jobs report certainly sparked some Fed concerns,” Cardillo said. “But if you look at the yield curve, you wouldn’t think that.”

U.S. Treasurys rallied Monday, with the benchmark 10-year note yield falling to 1.76 percent, while two-year yields traded at 0.65 percent.

Stocks closes lower Friday, with the Dow falling over 200 points and the Nasdaq tumbling 3 percent.

“At some point, prices have to get low enough where people start seeing them as bargains … but I don’t know when that’s going to happen,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. “This could go on for a while.”

Overseas, European equities fell, with the pan-European STOXX 600 index dropping 3.66 percent. The German DAX also dipped below the 9,000 mark for the first time since October 2014.

In corporate U.S. news, Hasbro and Diamond Offshore, among others, reported quarterly results.

“Through last Friday’s close, 314 companies in the S&P 500 have now reported 4Q 2015 results,” Nick Raich, CEO of The Earnings Scout, said in a note. “Collectively, 72% of those companies have seen their next quarter’s (i.e. 1Q 2016) EPS estimates drop 4.81% after reporting.”

“Once we get through earnings season, it will be easier for investors to take a more long-term view, but my fear is that the Q1 numbers aren’t going to look much better than the Q4 numbers,” Tower Bridge’s Ogg said.

In late-morning trading, the Dow Jones industrial average traded 347 points lower, or 2.1 percent, at 15,856, with Visa leading decliners and Johnson & Johnson and Chevron the only advancers.

The S&P 500 fell 39 points, or 2.2 percent, to 1,837, as consumer discretionary and financials led all 10 sectors lower.

The Nasdaq dropped 121 points, or 2.7 percent, to trade at 4,241.

The dollar traded 0.1 percent higher against a basket of currencies.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 26, up about 12.8 percent.

Decliners led advancers 9 to 1 on the New York Stock Exchange, with an exchange volume of 379 million and a composite volume of 1.686 billion as of 11:08 a.m. ET.

On tap this week:

Monday

Earnings: Hasbro, Yelp, 21st Century Fox, Loews, Diamond Offshore, Owens-Illionois, Owens and Minor

Tuesday

Earnings: Wendy’s, Disney, First Data, Panera Bread, Western Union, Solar City, Wellcare Health, Regeneron, Viacom, Spirit Airlines, Coca-Cola, Sanofi

6 a.m.: NFIB survey

10 a.m.: Wholesale trade; JOLTs

1 p.m.: 3-year note auction

Wednesday

Earnings: Time Warner, Cisco Systems, Twitter, Whole Foods, Tesla Motors, Humana, Sealed Air, Owens Corning, Nissan, Pioneer Natural Resources, iRobot, Flowers Foods, Rayonier, Zynga

10 a.m.: Fed Chair Janet Yellen testifies before House Committee on Financial Services

1 p.m.: 10-year note auction

1:30 p.m.: San Francisco Fed John Williams on health and the economy

2 p.m.: Federal budget

Thursday

Earnings: PepsiCo, Kellogg, Nokia, Molson Coors, Time Inc, Groupon, Pandora, Zillow, Teva Pharma, Borg Warner, Advance Auto Parts, CBS, KKR, FireEye, AIG, Activision Blizzard

8:30 a.m.: Initial claims

10 a.m.: Fed Chair Janet Yellen testifies before Senate Banking Committee

1 p.m.: 30-year bond auction

Friday

Earnings: Red Robin Gourmet Burgers, Calpine, Buckeye Partners, Interpublic, Ventas, Brookfield Asset Management

8:30 a.m.: Retail sales; import prices

10 a.m.: Consumer sentiment; business inventories; New York Fed President William Dudley speaks on household debt and credit

*Planner subject to change.

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