16:25 ET [BRIEFING.COM] Rising oil prices and a lousy earnings report from Citigroup (C 46.24, -1.63) combined to spark a concerted round of profit taking that got the week started on a bearish note.
There was a brief move higher at the open with some M&A news surrounding Tektronix (TEK 37.85, +9.51) and Biogen Idec (BIIB 82.51, +13.08) providing support. The major indices quickly rolled over, though, and spent the rest of the day in negative territory. At their lows for the session, which were hit around 15:30 ET, the Dow, Nasdaq and S&P were down 188, 41 and 21 points, respectively.
Some late buying interest helped pare the losses, but aside from a few select industry groups, most of which were in the energy sector (+1.1%), stock monitors were awash in red figures.
Oil prices hitting a record high of $86.22 per barrel provided a good excuse to take some money out of an overextended market. The 2.9% jump in crude futures for November delivery was driven by supply concerns that were fed by reports of rising tension between Turkey and Kurdish militants in northern Iraq.
As one might expect, rising oil prices took their toll on the transportation sector, which was evident in the 1.1% decline in the Dow Jones Transportation Average.
The influential financial sector (-1.8%), though, was the main weak spot and the biggest drag on the broader market. Dow component Citigroup was a big reason why.
Before the open, Citigroup reported a 57% drop in third quarter net income that was consistent with a warning it issued at the start of the month. Its profit of $0.47 per share actually topped the lowered consensus estimate by four cents. However, Citigroup's acknowledgment that consumer credit markets will continue to deteriorate in the fourth quarter was an unnerving revelation that compounded broader selling efforts.
Recall that Citigroup previously said it expected a return to a normal earnings environment in the fourth quarter. The warning about the consumer credit markets, then, sounded inconsistent with that view and raised some doubts as to whether the third quarter was indeed the bottom for the financial sector.
Our concerns about the market having expectations for the financial sector that were too high was a key reason why we reiterated our Underweight rating last week.
The consumer discretionary sector (-1.4%), which we also have rated at Underweight, was another notable laggard today with the homebuilding (-4.1%), apparel (-3.4%) and auto (-3.0%) groups leading the slide.
We should note that the financial and consumer discretionary sectors were among the biggest gainers following the Fed's rate cut on September 18. Accordingly, it is understandable that they would be leaders in a day of broad-based profit taking.
The same holds true for the small-cap stocks, which were the hardest hit issues today. The Russell 2000 slipped 1.40% versus declines of 0.8% for the S&P 500 and 0.7% for the S&P 400 Midcap index.
Separately, today's small batch of earnings reports was relatively disappointing as Mattel (MAT 22.22, -0.23) and Eaton (ETN 93.04, -3.36) both came up short of the Reuters Estimates consensus estimate.
The lone economic report on Monday - the NY Empire State Index - brought some good news with a reading of 28.8. That compared favorably to the prior month's reading of 14.7 and indicates the manufacturing sector held up well in the face of the financial market turmoil of late summer. A number above zero reflects expansion.
Tuesday brings a larger slate of earnings reports with Johnson & Johnson (JNJ 65.65, -0.29) highlighting the reporting calendar before the open and IBM (IBM 118.03, +0.22), Intel (INTC 25.75, +0.20) and Yahoo! (YHOO 27.86, -0.62) taking the lead after the close.
Dow -108.28 at 13984.80, Nasdaq -25.63 at 2780.05, S&P -13.09 at 1548.71
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