By Wallace Witkowski and Mark DeCambre, MarketWatch
Apple shares hit on how move may hurt China iPhone sales
Stocks closed sharply lower Tuesday as the Dow fell more than
200 points in the wake of a surprise devaluation of the yuan by
China--the world's second-largest economy.
China's devaluation calls into question how the U.S. economy may
fare as the Federal Reserve aims to start hiking interest rates for
the first time since 2006 as signs of slowing growth abroad
persists.
Investors sold exporters and makers of luxury goods
(http://www.marketwatch.com/story/gucci-other-luxury-accessories-makers-clobbered-as-china-devalues-yuan-2015-08-11)
in the wake of the currency move. Also, shares of 20 companies with
significant exposure to China
(http://www.marketwatch.com/story/these-are-the-20-china-exposed-stocks-to-avoid-2015-08-10),
as identified by Goldman Sachs on Monday, were all trading lower
Tuesday.
On the other hand, investors scooped up shares of Google
Inc.(GOOGL) (GOOGL), sending them up more than 4%, signaling their
approval of the tech giant's new corporate structure
(http://www.marketwatch.com/story/google-announces-new-structure-with-alphabet-as-parent-firm-2015-08-10)
built around a new umbrella company dubbed Alphabet Inc.
The Dow Jones Industrial Average tumbled 212.33 points, or 1.2%,
to close at 17,402.84, with Apple Inc.(AAPL) posting the worst
declines on the blue-chips index with a 5.2% tumble. The yuan
devaluation
(http://www.marketwatch.com/story/apple-stock-target-lowered-on-china-exposure-2015-08-11)
means the iPhone maker's gadgets will be more expensive in a key
market.
The S&P 500 declined 20.11 points, or 1%, to close at
2,084.07, led by losses in the materials sector, down 1.9%. The
Nasdaq Composite Index gave up 65.01 points, or 1.3%, to finish at
5,036.79.
Tuesday's descent in the Dow pushed it into what technical
analysts consider bearish territory, when the 50-day moving average
dips below the 200-day moving average, a so-called "death cross"
(http://www.marketwatch.com/story/dow-death-cross-is-a-bearish-omen-for-the-stock-market-2015-08-11),
which the index hasn't seen since late 2011.
Read: Here are the best reactions to Google's bombshell Alphabet
news
(http://www.marketwatch.com/story/here-are-the-best-reactions-to-googles-bombshell-alphabet-news-2015-08-10)
The downdraft in equities comes after U.S. stocks ended Monday
firmly higher
(http://www.marketwatch.com/story/us-stock-futures-climb-dow-on-track-to-break-7-session-losing-run-2015-08-10)
after Fed Vice Chairman Stanley Fischer suggested a September
interest-rate hike may not be a done deal.
China's yuan move: The People's Bank of China early Tuesday in
Asia devalued its tightly controlled currency, triggering the
largest one-day loss for the yuan in two decades
(http://www.marketwatch.com/storyno-meta-for-guid). That put upward
pressure on the dollar and ignited speculation the Fed may not
raise interest rates in September.
The strong dollar has taken a toll on U.S. exports in recent
quarters, and the Fed is closely watching the effects on the
economy. The ICE dollar index was slightly higher at 97.21 on
Tuesday, with the dollar jumping 1.9% to 6.3249 yuan, up from an
intraday low of around 6.2058 yuan, according to FactSet. Chinese
stocks ended slightly lower.
The PBOC move tweaks the dynamic of the Fed's effect on stocks:
Up until now, a delay in the September hike has been viewed as a
positive for stocks as seen on Monday
(http://www.marketwatch.com/story/us-stock-futures-climb-dow-on-track-to-break-7-session-losing-run-2015-08-10).
But with lower oil prices, the effect of a China slowdown on the
U.S. economy, and high stock valuations whose earnings rely on
Chinese growth, a delayed rate hike may take on a more negative
connotation now, said Nicholas Colas, chief market strategist at
Convergex, in an interview.
"The Fed has been very good at communicating they want to hike
rates in September," Colas said. "If we don't get a September hike
then the market is going to say, 'What are you worried about?'"
"I think we're seeing a sharp reaction [to China's currency
move] as investors try and figure out how bad this news really is,"
said Kate Warne investment strategist at Edward Jones. "People are
inferring that the change in China's foreign exchange policy
reflects a worsening economic situation," she said.
Nour Al-Hammoury, chief market strategist at ADS Securities,
said in a Tuesday research note "it is clear that the 'currency
war' is back, which will make the next few weeks very interesting,"
referring to economies devaluing their currencies to support their
exports.
On the other hand, the currency war reaction to the PBOC's move
may be "clearly overdone," said Julian Jessop, chief global
economist at Capital Economics, in a note. For now, Jessop is going
with the PBOC's explanation that the move is a "one-time
correction" to the currency, rather than the first of many
devaluations.
Read: What yuan move means for a September rate hike
(http://www.marketwatch.com/story/return-of-currency-war-and-a-drag-on-fed-rate-hike-analysts-on-the-surprise-yuan-devaluation-2015-08-11)
Economic data: The NFIB small business index for July showed
small-business owners' confidence about their economic situation
modestly rebounded last month
(http://www.marketwatch.com/story/small-business-optimism-rises-in-july-nfib-says-2015-08-11).
Median existing single-family home prices rose in 93%
(http://www.marketwatch.com/story/us-home-prices-rose-in-93-of-metro-areas-during-the-second-quarter-2015-08-11)
of 176 metro areas during the second quarter, up from 85% in the
prior quarter, according to the National Association of Realtors on
Tuesday.
Wholesale inventories jumped a seasonally adjusted 0.9%
(http://www.marketwatch.com/story/wholesale-inventories-climb-09-in-june-2015-08-11)
in June, the Commerce Department said on Tuesday.
Movers & shakers: Shares of Symantec Corp.(SYMC) fell nearly
7% after the company announced it will sell its information
management business Veritas for $8 billion in cash
(http://www.marketwatch.com/story/symantec-agrees-to-sell-veritas-to-the-carlyle-group-gic-for-8-billion-cash-2015-08-11).
In other deal news, shares of Symetra Financial Corp.(SYA)
jumped nearly 7% after Japan's Sumitomo Life Insurance Co. said it
plans to buy the life insurance company in a deal valued at about
$3.8 billion
(http://www.marketwatch.com/story/sumitomo-life-agrees-to-buy-symetra-financial-in-38-billion-deal-2015-08-11).
Shares of Shake Shack Inc.(SHAK) declined 3%, following an
earlier jump, after the burger chain late Monday reported earnings
that beat analyst forecasts.
Kraft Heinz Co.(KHC) shares declined 1.1%. The food and beverage
company on Monday released its first earnings report as a merged
entity, saying second-quarter revenue missed expectations.
Other markets: European stocks mainly fell, with Germany's DAX
30 index hit particularly hard
(http://www.marketwatch.com/storyno-meta-for-guid). But the stock
market in Athens rose after Greece said it has reached agreement
with creditors
(http://www.marketwatch.com/story/greece-says-it-has-agreed-on-terms-for-third-bailout-with-creditors-2015-08-11)
on terms needed to unlock a third bailout.
Oil prices were also hurt by China's move
(http://www.marketwatch.com/storyno-meta-for-guid), with crude
futures dropping to their lowest settlement in six years. Prices
stayed lower after the Organization of the Petroleum Exporting
Countries said the group's production rose to its highest level in
more than three years.
Prices for crude oil, like most other commodities, are pegged to
the dollar, which means China's imports will become costlier. Gold
prices settled higher as expectations for a rate hike are pushed
back (http://www.marketwatch.com/storyno-meta-for-guid).
--Sara Sjolin in London contributed to this article.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires