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The futures were weak going into the Retail Sales report at 8:30 a.m. ET, but it wasn't that weak: down about 9 points from yesterday's close.
Then the disappointing Retail Sales hit at 8:30 a.m., and futures dropped another 9 or so points. At that point, we were down about 18 or 19 points.
But within 10 minutes of the open, the S&P was down 40 points.
Stocks sank after a triple whammy of disappointing U.S. data. How disappointing was it? Even Europe dropped after the numbers came out at 8:30 a.m. EDT.
September retail sales and PPI both came in weaker than expected. October manufacturing activity in New York was poor too, falling short of estimates after posting its strongest pace in nearly five years last month.
September retail sales were troubling. Electronics had a nice pop, likely due to the release of the new iPhone, but everything else was disappointing. What happened? Isn't declining oil supposed to be a positive for retail sales? It is, but the big drop only occurred in October.
Most likely, there was a reverse wealth effect. Look what stocks did in September. The S&P was down 1.5 percent. There has been a lot of reliance on rising stock market prices as support for consumer spending. There is no wage and salary growth.
There is a lot of pain in hedge-fund land. Imagine how these guys feel. First, they have underperformed all year because most funds run a book of long stocks versus a book of short stocks. Because shorts have underperformed most of the year, they have underperformed the market. Again.
Now, they are getting killed because of how they are positioned: 1) long U.S. market, and 2) long growth stocks.
But a particularly painful example is energy. The Street has been heavily involved in exploration and production stocks, particularly smaller-cap shale plays, which have been dramatically growing earnings.
My inbox is full of talk about the technical damage that has been done to the markets. Less than 30 percent of stocks are above their 200-day moving averages. Only 20 percent are above their 10-day moving averages. It goes on and on.
The problem is this has taken everyone's mind off the fundamentals. True, there are many headwinds: greater risk of a slowdown in Europe and China, the end of quantitative easing, and the difficulty of controlling an Ebola epidemic.
But there are tailwinds as well: lower oil prices, a better U.S. economy and very high cash levels at U.S. corporations.
Given the negative sentiments, it's worthwhile to note that two bank executives highlighted the strengths of the U.S. economy in their earnings report Tuesday morning.
Wells Fargo CEO John Stumpf noted, "We continue to see signs of a steadily improving economy."
And JPMorgan Chase CEO Jamie Dimon said, "While challenges remain in the global economic recovery, the U.S. economy is an exception, showing signs of steady improvement."
Speaking of banks, three big names reported, with Citigroup announcing an earnings and sales beat, JPMorgan missing on earnings, and Wells Fargo roughly in line.
Traders have been looking for a bounce in two critical sectors...small caps and energy.
We did get a nice lift in the small-cap Russell 2000 (IWM) early morning, and it's about time: it has been a terrible underperformer for months, particularly in the last 30 days or so, when the Russell 2000 has been down roughly 10 percent versus the roughly 5 percent decline in the S&P 500.
Russell had been positive all day even as the S&P has drifted into negative territory, but now it too has drifted into negative territory.
No bounce at all in one dramatically oversold sector, energy. The main ETF for exploration and production stocks (XOP) is down 23% in the past month.
It's been a rough two weeks for the markets, and pessimistic gauges are in the danger zone. Indexes have been down on several concerns, principally growth fears stemming from Europe and China, and now Ebola. This has been balanced against a number of positive developments:
1) Improving U.S. economy;
2) Low inflation;
3) Accomodative central banks;
4) Valuations mostly not expensive; and
5) Lack of investment alternatives.
Still, sentiment seems extremely negative.The CBOE Volatility Index is up over 80 percent in the last month; market internal indicators have deteriorated dramatically, with an expansion of new lows and much technical damage. CNNMoney's Fear and Greed Index has indicated "extreme fear," up from "neutral" just a month ago.
For all of you who thought high-speed trading began 10 years ago, think again.
Here's an excerpt:
From the outset there was a deep and abiding suspicion of the broker, who, for a price, was willing to buy or sell your stock, bond or commodity. It was a suspicion that these middlemen knew something that buyers and sellers did not.
True or not, these complaints underscore a larger historical fact: any technology that increased the speed of information flow was immediately adopted by the trading community in both Europe and the United States. Traders have employed every known conveyance to trade faster and cheaper. They were among the earliest adopters of faster boats, faster stagecoaches and private horse expresses. The trading of securities was among the very first uses of the telegraph.
The adoption of these high-speed trading techniques had two characteristics: 1) they greatly reduced the price differences between markets, and 2) those who were slower to adopt bitterly complained that the new technologies offered unfair advantages to the participants.
The S&P 500 Index is at a two-month low. How real is the main concern, which is slowing global growth?
There is some basis for nervousness. German industrial production is down 4.0 percent month-over-month; August exports tumbled 5.8 percent month-over-month. Meanwhile, Italian third quarter GDP will likely be negative, and even Germany will be lucky if it ekes out a 1 percent gain.
Even International Monetary Fund chief Christine Lagarde is downbeat; the IMF this week said that the euro zone faces a one-in-three risk of falling back into a recession within the next six months.
The issues dogging the market are essentially the same as a couple days ago: It's the collision between a slowdown in global growth (ex-U.S.) and the Fed debate on when it should raise interest rates.
Specifically, the market is dealing with:
1) There's poor German trade data. German exports dropped 5.8 percent in August, the largest decline since the financial crisis 5.5 years ago.
An uptick in borrowing has come from high net-worth clients in brokerages, not from the consumer banks.
The face of automation on Wall Street is a computer hooked up to nine blinking screens that goes by the name Quantitative Market Maker, or Q.M.M.
After a turbulent market week, some strategists are ready to call the all clear. But others say stocks could still test the lows of the past week.