Benchmarks closed lower on Thursday, dragged down by declines in financial shares. Worries about the health of Deutsche Bank threatened to roil the financial sector, while talk of a December rate hike by the Fed officials unnerved investors. While the Dow closed down triple digits, all the sectors of the S&P 500 ended in the red. The Nasdaq, on the other hand, was weighed down by declines in shares of Apple and biotech stocks.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) declined 1.1% or 195.79 points to close at 18,143.45. The S&P 500 dropped 0.9% to close at 2,151.13. The tech-laden Nasdaq Composite Index closed at 5,269.15, decreasing 0.9%. The CBOE Volatility Index (VIX), a gauge of near-term investor anxiety, surged 13.2% to settle at 14.02. A total of around 7.7 billion shares were traded on Thursday, above the last 20-session average of 7 billion. Decliners outpaced advancing stocks on the NYSE. For 77% stocks that declined, 21% advanced.
Deutsche Bank Hits All-time Low
Concerns over the stability of Germany’s biggest bank Deutsche Bank AG (DB - Analyst Report) sent its U.S listed shares to an all-time low, which eventually weighed on the financial sector. Shares of Deutsche Bank tanked 6.7% after a handful of hedge funds that clear derivatives through the bank withdrew excess cash and positions, according to a Bloomberg report.
Some of the funds that have moved part of their listed derivatives holdings to other firms included Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management. A spokesperson from Deutsche Bank, however, claimed that the bank is pretty confident that a “vast majority” of its derivatives-clearing clients “have a full understanding of its stable financial position, the current macroeconomic environment, the litigation process in the U.S. and the progress the bank is making with its strategy.”
Nevertheless, the latest blow came in, when Deutsche Bank faces a $14 billion fine from the U.S. Justice Department. The bank needs to settle civil claims, which is related to sale of structured mortgage bonds during the 2008-2009 financial crisis. German Chancellor Angela Merkel had said that she wouldn’t offer state aid to the giant lender. Merkel was in no mood to offer assistance as she was heading into an election year.
Shares of the lender had already plunged more than 50% this year as investors remain worried about the institution’s thin capital cushion. The International Monetary Fund, back in June, had described Deutsche Bank as the greatest threat to the global financial system (read more: Deutsche Bank Down Over 7%, Stock Hits New Low).
The Financial Services Select Sector SPDR (XLFS) decreased 1.4%. Dow components Goldman Sachs Group, Inc. (GS - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report) dropped 2.8% and 1.6%, respectively.
Fed Officials on Rate Hike
Philadelphia Fed President Patrick Harker said that he favors hiking rates in December provided the economy continues to grow as expected. He believes that if the labor market keeps improving and inflation continues its steady rise then it would be appropriate to raise short-term interest rates “sooner rather than later”.
Atlanta Fed President Dennis Lockhart also expects the Fed to be in a position to raise rates soon. Possibility of a near term rate hike dented investors’ sentiment. The Fed, however, had opted to keep short-term interest rates unchanged “for the time being” as they sought further evidence of economic strength (read more: Fed Holds Off Rate Hike for Now: Top 5 Gainers).
Apple, Biotechs Weigh on Nasdaq
Shares of Apple Inc. (AAPL - Analyst Report) fell 1.6% after Barclays PLC (BCS - Analyst Report) trimmed its price target. Apple was the biggest drag on the Nasdaq. Broad based selloff among biotech stocks also adversely affected the tech-laden index.
The iShares Nasdaq Biotechnology (IBB) declined 3.1%. Key biotech stocks such as Biogen Inc. (BIIB - Analyst Report) and Amgen Inc. (AMGN - Analyst Report) decreased 1.5% and 2.5%, respectively. Both the two companies possess a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stock that Made Headline
Spotify News Round-Up: Japan Launch, Reportedly Acquiring SoundCloud
As Spotify eyes an IPO next year, SoundCloud and its investors including Twitter Inc. (TWTR - Analyst Report) stand to benefit. (Read More)
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