Dow dives 178 on China's inflation fears

Talk of some price controls in China hits commodity prices hard. Wheat falls 7%. Gold has dropped 6% in a week. GM boosts the size of its IPO. Home Depot and Wal-Mart are winners.

By Charley Blaine Nov 16, 2010 2:40PM

Charley BlaineUpdated: 11:44 p.m. ET

Stocks suffered their worst one-day losses since August as concern built that China was about to impose some price controls to rein in inflation and that European debt problems are getting worse.

The China worries battered commodity prices; gold fell more than $30 an ounce. Wheat dropped nearly 7%. The rout slashed the prices of commodity stocks.

The selling was deep enough that the Dow Jones industrials ($INDU) fell below 11,000 several times during the day before recovering a bit at the close.

The Standard & Poor's 500 Index ($INDU) dropped below an important support level.

The Dow closed down 178 points, or 1.6%, to 11,024. The blue chips had been down as many as 223 points. The S&P 500 was off 19 points, or 1.6%, to 1,178. The Nasdaq Composite Index ($COMPX) fell 44 points, or 1.8%, to 2,470.

If you wanted some good news from today's drubbing, it came from General Motors. News reports suggested that the automaker is increasing the site of its initial public offering by 31%, to about 478 million shares.


The shares are expected to price between $32 and $33 a share. Combined with a sale of $4 billion in preferred stock, the GM offering would the largest U.S. IPO. 


Futures trading, however, suggests a modestly lower open on Wednesday.


Back to mid-October levels
The GM news came after a  close that saw the indexes ending the day back at levels last seen in mid-October.


The Dow's loss was its worst one-day point and percentage loss since Aug. 11, when the blue-chip index fell 265 points.

The S&P 500's decline pushed it below 1,193. That has been an important support level. From that level, the index surged to a high of 1,227 on Nov. 5.

The index held above 1,177, however. That level provided important support for the index through much of October. Standard & Poor's 500 Index

A support level is a price point that tends to bring new buying in a stock or index.

Only two of the 30 Dow stocks were higher today: Home Depot (HD), up 1% to $31.71, and Wal-Mart Stores (WMT), up 0.6% to $54.26. They were also the sixth- and seventh-best S&P 500 performers.

Both reported fiscal-third-quarter results that beat estimates and guided higher for the fourth quarter.

Wal-Mart sees same-store sales rising as much as 2% for the quarter, with most of the sales coming in the week before Christmas.

Selling was broad; each of the 10 sectors of the S&P 500 fell at least 1%.

The Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, was off 38 points, or 1.8%, to 2,094. First Solar (FSLR) was the biggest percentage loser in the index, down 6.4% to $130.69. Apple, down 1.8% to $301.59, subtracted 7.6 points from the index. 

Only three Nasdaq-100 stocks were higher: Urban Outfitters (URBN), up 11.9% to $36.63; Mattel (MAT), up 3.3% to $24.33; and Costco Wholesale (COST), up 0.4% to $65.74.

Energy prices -- New York close
 

Tues.

Mon.

Month chg.

YTD chg.
Crude oil 

$82.34

$84.86

1.12%

3.76%
(per barrel)











Heating oil

$2.3090

$2.3709

3.19%

9.14%
(per gallon)











Natural gas 

$3.8420

$3.8450

-5.45%

-31.48%
(per mil. BTU)











Unleaded gasoline

$2.1557

$2.1950

4.68%

5.01%
(per gallon)











Retail gasoline

$2.8930

$2.8920

2.99%

9.62%
(per gallon; AAA)












China's inflation fears hit markets
Today's selling came after China's Shanghai Composite Index fell more than 4% on word that the government was considering measures to counter rapid price increases across much of the economy, especially for food.

Premier Wen Jiabao took to a Shanghai supermarket to say that his Cabinet is drafting anti-inflation measures.

The China news slammed commodity prices globally. Wheat and corn prices were sharply lower. Wheat fell 6.3% to $630.50 a bushel in Chicago.  Corn was off 5.2% to $5.265.

At the same time, the European debt crisis was grinding along. Reports said Irish and European officials were discussing a bailout package for Ireland's debt. The worries pushed the dollar higher against the euro.

The Wall Street Journal said European finance ministers working on an international aid package for Ireland want the United Kingdom to make bilateral loans to Ireland as part of a larger aid package that could total up to 100 billion euros ($135 billion).

Greece was brought back into the center of sovereign debt concerns by news that Austria has opted to withhold bailout funds for the country because Greece may miss its deficit reduction target.

Gold settled at $1,338.40 an ounce, down $30.10, or 2.2%. The metal is down 6% since peaking at $1,424.30 intraday on Nov. 9.

Silver was off 85.9 cents, or 3.3%, to $25.333 an ounce, and copper was down 19.75 cents a pound, or 5%, to $3.7275.

Crude oil, meanwhile, settled down $2.52, or 3%, to $82.34 a barrel.

Meanwhile, interest rates moved lower as the dollar rallied against major currencies. The 10-year Treasury yield dropped to 2.847%, down from 2.91% on Monday. The five-year Treasury was at 1.467%, up from 1.493% on Monday. Freeport-McMoRan Copper & Gold

Commodity stocks were slammed. Freeport-McMoRan Copper & Gold (FCX) was off 4.3% to $97.61. Southern Copper (SCCO) dropped 2.9% to $42.43. U.S. Steel (X) dropped 2.4% to $45.43. Dow component DuPont (DD) dropped 1.4% to $45.68.

Caterpillar (CAT), which has benefited from China's enormous investment in infrastructure, was off 1.8% to $80.37. That subtracted 12 points from the Dow.

Stocks seeing big activity
  • Dendreon (DNDN), up 1.2% to $35.87. Soros Fund Management disclosed it owns about 1.8 million shares of the company. At the same time, there are concerns that Medicare won't cover the full $93,000 cost of its prostate-cancer drug Provenge.
  • Dick’s Sporting Goods (DKS), up 12% to $33.51. The sporting goods chain earned 22 cents a share in the fiscal third quarter. Analysts had expected 17 cents. The company raised its full-year earnings forecast to at least $1.56 a share.
  • General Growth Properties (GGP), down 7.1% to $14.31. The big shopping mall owner said an offering of 135 million shares was priced at $14.75 a share, less than expected. Proceeds will be used to buy back equity commitments from investors in a reorganization plan.
  • Mela Sciences (MELA), down 54.2% to $2.92. A U.S. Food and Drug Administration staff report said the company’s MelaFind hasn’t been adequately studied as a skin-cancer diagnostic tool and could put the public health at risk.
  • Nordstrom (JWN), down 3.1% to $40.55. The upscale department-store chain narrowed its 2011 outlook to a range of $2.60 to $2.65 a share. The consensus had been $2.64.
Short hits from the markets -- New York close
 
  Tues.

Mon.

Month chg.

YTD chg.
Treasury yields




 





13-week Treasury bill

0.140%

0.130%

16.67%

180.00%
5-year Treasury note 

1.467%

1.493%

24.43%

-45.38%
10-year Treasury note

2.847%

2.648%

9.00%

-25.92%
30-year Treasury bond

3.916%

4.370%

-2.10%

-15.62%
Currencies







 

 
U.S. Dollar Index

79.333

78.673

2.42%

1.42%
British pound

$1.5891

$1.6059

-1.02%

-1.76%
(in U.S. $)











U.S. $ in pounds

£0.6293

£0.6227

1.03%

1.80%
Euro in dollars

$1.3493

$1.3591

-3.36%

-5.86%
(in U.S. $)











U.S. $ in euros

€ 0.7411

€ 0.7358

3.48%

6.22%
U.S. $ in yen 

83.47

83.11

3.17%

-10.24%
U.S. $ in Chinese

6.66

6.64

-0.45%

-2.37%
yuan











Canada dollar

$0.980

$0.991

-0.26%

3.07%
(in U.S. $)











U.S. dollar 

$1.021

$1.009

0.27%

-2.98%
(in Canadian $)











Commodities

 

 

 

 
Gold

$1,338.40

$1,368.50

-1.41%

22.09%
(per troy ounce)











Copper

$3.7275

$3.9250

-0.16%

11.39%
(per pound)











Silver

$25.2330

$26.0920

2.72%

49.80%
(per troy ounce)











Wheat 

$6.2650

$6.7275

-12.65%

15.70%
(per bushel)











Corn

$5.2650

$5.5550

-9.54%

27.02%
(per bushel)











Crude oil 

$82.34

$84.86

1.12%

3.76%
(per barrel)










 
27Comments
Nov 16, 2010 5:38PM
avatar

poor poor wall street,

 

 

i hate so bad they have lost money today, but for we the people,  oil settled down less so that is more money that we the people can buy some food .

Nov 16, 2010 3:47PM
avatar

History is repeating itself, with change comes change.  With the new makeup of congress the historical is happening again, the stock market is losing it value.   Business is waiting for a tax break so they can create jobs and ship them out of the country as they have done in the past.  

Nov 16, 2010 3:06PM
avatar
At least someone is trying to keep inflation down, not like Ben Bernake.
Nov 16, 2010 7:22PM
avatar

Tires, plastic, roads and many other things are all made with oil.

Simplistic people only connect oil to gasoline. Simple people only blame speculators for the price of oil.

Smart companies buy their oil on the futures market months ahead of when they need it. To counter market fluctuations and to set the price of their products.

I agree FrEddddd.

Nov 16, 2010 7:21PM
avatar

1) Gasoline retail prices moved just under 300% from 2000 through 2008 ($1.78 to $4.25). 

 

2) Oil company PROFIT -- difference between cost of goods sold and sales (hyper simplified) rose at an exponential rate over the same period.  Exponential means the curve is going up and so is the profit -- the change in rate of profit is accelerating.  It's not that the increase in the cost of the raw material to the refiner and ultimately the station rose at the same rate as the pump price -- instead, the pump price wildely outpaced the price of the raw material. 

 

Those are two undeniable facts.  You can't explain them away, and you can't explain them with "market forces." 

 

 

Nov 16, 2010 4:57PM
avatar

"Why So High- 3 years ago ( 2007) oil was $85 a barrell and gasoline was at $2.59"

 

...Jonesey, where to you live?  Regular is $3.09/gallon here, has been for about two weeks.  Is it somewhat unrealistic to think the oil companies do not, in some way or another, control the price of gas?

 

Nov 16, 2010 4:51PM
avatar

"Whay are gas prices continuing to rise??? We should be paying no more than $2 per gallon, just like 3 years ago when the barrel was $85 and we were paying less than $2!! What the heck is going on here?"

 

....Perhaps the oil company execs need to justify their 1Q11 bonuses.  There is no true competition in the oil/gas industry, they function as an oligarchy, and if they so desire, can drive up the price of fuel to their liking, and no, their friends in Congress will not scold them, some, perhaps a GOP congressman from Texas, might even apologize to them should anyone have the audacity to offer such criticism..

Nov 16, 2010 4:31PM
avatar
Is China controlling our stock market now??
Nov 16, 2010 4:31PM
avatar

Whay are gas prices continuing to rise??? We should be paying no more than $2 per gallon, just like 3 years ago when the barrel was $85 and we were paying less than $2!! What the heck is going on here?

 

Nov 17, 2010 1:09PM
avatar

Go buy your safe havens, right now I'm buying stocks while they are still attractively priced.

 

btw, the end of the world may not actually be coming in 2012.  Some scientists suggest the math was wrong in calculating it. Open-mouthed

Nov 17, 2010 2:45AM
Nov 16, 2010 11:12PM
avatar
Price controls create shortages and black markets.  This will end in a mild disaster for Chinese consumers.  
It would be easier, even simpler, to just remove the peg!

Fix the peg!




Nov 16, 2010 8:05PM
avatar
More of the heavy sour crude, less of the light sweet crude. It takes more energy to crack the large molecules and produce lighter products like gasoline, hence the higher gas prices. The days of cheap gasoline are gone forever.  
Nov 16, 2010 7:07PM
avatar
How can you use one commodity price to determine another commodity price? Both are variable on the market. Neither are dependant on each other. Hence the problem with trying to pin them to each other.
Nov 16, 2010 6:55PM
avatar
At the end of the Bush years, three years ago. We were paying $4 a gal for gas. Then Bush made Tarp and gas suddenly fell to $2.50 a gal.
Nov 16, 2010 6:18PM
avatar

Does anyone remember when the talking heads said the U.S. was trying to decouple from the rest of the world, guess that is a failure (not Obama's fault)?

Instead of the world getting the flu when we sneeze, they sneeze and we sneeze and cough. This is part of what happens with globalization - PIIGS suffer we suffer with the Euro zone and  China has become our bank. Our recovery will stop and go for the next 8-10 years to come.

 

This is for those that are glad to see wall street fail - 401ks get hurt, state, county, and city governments get hurt with the people receiving most of the pain because when the rich sneeze the middle class and the poor catch a cold.

Nov 16, 2010 6:00PM
avatar

RoadHouse- I was responding to the question about gas prices from 3 years ago.  I live in the Houston Galveston area and right now gasoline averages $2.65 a gallon for regular.  There is still no reason for oil to be this high with a glut in the market.

 

SunnyOutlook- Your partly right however the EPA has a lot to do with the lack of new refineries on US soil.  They won't issue permits without years of environmental checks and red tape.  Market manipulation by speculators is one of the largest culprits in the high prices.

Nov 16, 2010 5:12PM
avatar
The refiners control gasoline prices and not all the oil companies also refine their oil. Years ago the refineries decided they wanted to control gasoline prices and concertedly closed a number of refineries across the globe in order to maintain close control of gasoline production. The reason no new refineries have been built in years is mostly because the refiners do not want to produce too much gasoline to bring prices down....that is why when you see hurricanes in the gulf of Mexico near some of the refineries gasoline goes sky high as they have to shut them in until the hurricane passes. 
Nov 16, 2010 4:56PM
avatar

China needs to wake up and realize that growth is the cousin of inflation... you have to make more money available to keep it going.  They should try not to take the rest of the world with them in the process.

Nov 16, 2010 4:50PM
avatar

So today Europe's debt is a problem.  Tomorrow, it won't be.  Regardless of what the talking heads say, Europe's debt IS A PROBLEM!!!  If we don't change, our debt will be a problem as well.

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