Stock Market Drag? Here’s What’s To Blame
As Goldman Sachs watched its share price sink on Tuesday, it downgraded the auto industry, dragging down the entire stock market.
They say that misery seeks company and on Tuesday, Goldman Sachs (NYSE:GS) dragged as many companies down with it as one could have imagined. Although Goldman’s earnings per share beat expectations, attention focused on its return on equity, which was a humble 10.5 percent for the enormous investment bank. As Goldman’s share price sank 1.69 percent on Tuesday, Goldman saw fit to sink the entire automobile sector by a slightly more significant amount — 1.8 percent — downgrading the entire industry to “neutral” for the first time since 2009. The stock market bullishness which had driven the major indices to new records on Monday was nowhere to be found on Tuesday.
Goldman’s Patrick Archambault — whose report struck auto stocks on Tuesday — did not waste the opportunity to launch another attack on Tesla (NASDAQ:TSLA), setting a price target of $84 per share and a “worst case scenario” price target of $58 per share. Archambault previously attacked Tesla on May 9, when he downgraded the stock to “neutral” and set a six-month price target of $61 per share. Despite Archambault’s infinite wisdom, the stock reached a high of $127.26 before Archambault renewed his attack on the company.
Although the Consumer Price Index rose more than expected in June by 0.5 percent, compared with expectations for a 0.3 percent increase, the extra boost was caused by increased gasoline prices. “Core” CPI, which excludes volatile food and gasoline prices, rose in line with expectations by 0.2 percent.
The Dow Jones Industrial Average (NYSEARCA:DIA) lost 32 points to finish Tuesday’s trading session at 15,451 for a 0.21 percent decline. The S&P 500 (NYSEARCA:SPY) fell 0.37 percent to close at 1,676. The Nasdaq 100 (NASDAQ:QQQ) dipped 0.08 percent to finish at 3,077. The Russell 2000 (NYSEARCA:IWM) declined 0.44 percent to end the day at 1,038.
In other major markets, oil (NYSEARCA:USO) fell 0.50 percent to close at $37.48. On London’s ICE Futures Europe Exchange, September futures for Brent crude oil declined by 20 cents (0.19 percent) to $107.88/bbl. (NYSEARCA:BNO). August Gold Futures advanced by $7.40 (0.58 percent) to $1,290.90 per ounce (NYSEARCA:GLD). Transports broke an axle on Tuesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) dropping 0.75 percent.
In Japan, stocks surged on optimism of a strong earnings reporting season. The Nikkei 225 Stock Average advanced 0.64 percent to 14,599 (NYSEARCA:EWJ).
In China, stocks continued to advance as the solar and technology sectors benefitted from the government’s plans to support clean energy and subsidize advancements in the tech sector. The Shanghai Composite Index advanced 0.31 percent to close at 2,065 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index rose 0.04 percent to finish the session at 21,312 (NYSEARCA:EWH).
European stocks were unable to dodge the consequences of disappointing economic news on Tuesday as German economic sentiment declined and new car sales across the European Union fell to their lowest level since 1996 (NYSEARCA:VGK).
The Euro STOXX 50 Index finished Tuesday’s session with a 0.78 percent decline to 2,665 – faltering in the struggle back toward its 50-day moving average of 2,703. Its Relative Strength Index is 51.39 (NYSEARCA:FEZ).
Technical indicators reveal that the S&P 500 remained above its 50-day moving average of 1,635 after finishing Tuesday’s session with a decline to 1,676. At this point, bears are anticipating the formation of a double-top. Its Relative Strength Index dropped from 67.13 to 64.23. Both the MACD and the signal line continue to rise above the zero line, suggesting an advance.
For Tuesday, most sectors were in negative territory, except for the technology sector, which advanced 8 percent. The materials sector took the hardest fall, sinking 0.75 percent.
Consumer Discretionary (NYSEARCA:XLY): -0.54 percent
Technology (NYSEARCA:XLK): +0.08 percent
Industrials (NYSEARCA:XLI): -0.54 percent
Materials (NYSEARCA:XLB): -0.75 percent
Energy (NYSEARCA:XLE): -0.61 percent
Financials (NYSEARCA:XLF): -0.39 percent
Utilities (NYSEARCA:XLU): -0.55 percent
Health Care (NYSEARCA:XLV): -0.58 percent
Consumer Staples (NYSEARCA:XLP): -0.36 percent
Bottom line: Goldman Sachs managed to drag the entire stock market down with itself on Tuesday, as its share price fell 1.69 percent. The firm’s downgrade of the entire American auto industry helped destroy the bullish momentum that drove the Dow, S&P 500, and Russell 2000 to new record-high closing levels on Monday.
John Nyaradi is the author of The ETF Investing Premium Newsletter.