By Wallace Witkowski and Anora Mahmudova, MarketWatch
Second-quarter GDP growth revised higher
U.S. stocks tumbled Thursday, with the Dow industrials shedding
more than 200 points after two straight days of gains, as investors
appeared to shift their focus from a preliminary agreement on oil
output to worries about European banks and talk of a December rate
increase by the Federal Reserve.
Investors were following embattled giant German lender Deutsche
Bank, which has been buffeted by concerns about the health of its
balance sheet, specifically its ability to withstand a potential
$14 billion fine from the U.S. Justice Department. Deutsche Bank's
U.S.-listed shares (DBK.XE) were trading off sharply in recent
trade.
The Dow Jones Industrial Average fell 244 points, or 1.3% to
18,095, with the largest decliners being Goldman Sachs Group
Inc.(GS), which fell more than 3%, and Merck & Co.(MRK)
shedding more than 2%.
The S&P 500 index dropped 25 points, or 1.1%, to 2,146, with
all sectors trading down led by declines in utilities, health-care,
and financial shares.
The Nasdaq Composite Index declined 60 points, or 1.1% to
5,259.
By afternoon trading, focus shifted away from OPEC to European
banks, following a report that a handful of derivatives-clearing
clients had withdrawn excess cash from Deutsche Bank
(http://www.marketwatch.com/story/deutsche-bank-shares-tumble-after-report-says-some-clients-reduce-collateral-on-trades-2016-09-29).
Read:Deutsche Bank shareholders in for more pain
(http://www.marketwatch.com/story/more-pain-in-store-for-deutsche-bank-shareholders-2016-09-28)
"Whenever we hear of a banking risk, people think of a domino
effect, it's in the back of everyone's mind," said Karyn Cavanaugh,
senior market strategist at Voya Financial. "People are trying to
compare it to [the European banking crisis] of 2008 and that's a
little unsettling."
See:Deutsche Bank crisis threatens to roil global markets
(http://www.marketwatch.com/story/a-crisis-in-european-banks-threatens-to-roil-global-markets-2016-09-28)
Add to that a continued grilling
(http://blogs.marketwatch.com/capitolreport/2016/09/29/live-blog-and-video-of-house-hearing-about-wells-fargo/)of
Wells Fargo & Co. (WFC) CEO John Stumpf on Capitol Hill
amplified worries over banks, Cavanaugh said.
"It is expected to see Deutsche Bank shares sell off sharply,
because a lot of portfolio managers with fiduciary duties have to
sell their position in a stock that is problematic," said Bret
Chesney, senior trader at Alpine Partners. "However, the broad
market is overreacting to such moves in an individual stock, just
as it was overreacting to a jump in oil yesterday."
Busy day for economic data, Fed speakers: Initial jobless claims
rose 3,000 to 254,000 in late September, but remained below 300,000
for 82 straight weeks, pointing to a steadily improving labor
market.
Meanwhile, revised data suggest that the economy's performance
in the spring was slightly better than expected, as business
investment wasn't nearly as weak as previously reported. The gross
domestic product grew a 1.4% pace in the second quarter.
On Thursday, Philadelphia Fed President Patrick Harker
(http://www.wsj.com/articles/feds-harker-says-higher-rates-may-spur-greater-business-investment-1475142348)said
he backs a December rate increase if the economy continues to grow
as expected, while Atlanta Fed President Dennis Lockhart
(http://www.wsj.com/articles/feds-lockhart-sees-rate-increase-before-long-1475151712)
said he expects the Fed to be in a position to raise rates
soon.
Fed Gov. Jerome Powell
(http://www.wsj.com/articles/feds-powell-calls-gradual-increases-the-correct-path-for-interest-rates-1475161800),
on the other hand, said the Fed can afford to be patient in
gradually raising rates as the economy slowly improves.
Later in the day, Minneapolis Fed President Neel Kashkari is
scheduled to participate in a town hall on economic development in
Rapid City, South Dakota at 2 p.m. Eastern
Finally, Fed Chairwoman Yellen will take part in a
videoconference for the Kansas City Fed at 4 p.m. Eastern.
The U.S. economy grew
(http://www.marketwatch.com/story/second-quarter-gdp-raised-to-14-from-11-2016-09-29)at
a fractionally faster pace during spring, a government report said.
Meanwhile, weekly jobless claims rose slightly
(http://www.marketwatch.com/story/jobless-claims-rise-slightly-to-254000-2016-09-29),
but remained at historically low levels.
The main indexes rose Wednesday fueled by a surge in oil prices
that boosted energy shares. The Organization of the Petroleum
Exporting Countries reached an "understanding" over limiting crude
production and is considering cutting output to between 32.5
million and 33 million barrels a day, The Wall Street Journal
reported
(http://www.marketwatch.com/story/opec-reaches-agreement-on-need-to-cut-oil-output-2016-09-29).
Read:OPEC has a terrible record adhering to quotas, oil analysts
say
(http://www.marketwatch.com/story/opec-has-a-terrible-record-adhering-to-quotas-oil-analysts-say-2016-09-29)
The price of West Texas Intermediate crude surged 5% on the news
Wednesday, driving energy stocks higher. Oil prices advanced 1.5%
to $47.76 a barrel Thursday while doubts lingered over the details
of the planned agreement.
Read:Doubts linger over OPEC's preliminary deal on output
(http://www.marketwatch.com/story/doubts-linger-over-opecs-preliminary-deal-on-oil-output-2016-09-28)
Oil prices are still facing a "major range boundary that mirrors
broader consolidation trends in the financial sector," said John
Kicklighter, chief currency strategist at DailyFX, in a note to
clients.
"It will take more than a cap on supply from even this large
producer of a vital commodity to change the sentiment of the entire
financial system; and developing a trend independent of general
congestion is fraught with danger," said Kicklighter.
Markets rallied across Asia and Europe and the Japanese yen fell
(http://www.marketwatch.com/story/yen-pulls-back-dollar-higher-as-investor-appetite-for-risk-heats-up-2016-09-29)
as oil-price gains triggered an appetite for riskier assets such as
stocks. The yen is traditionally viewed as place to hide when
investors fear economic or global uncertainty.
Read:Government shutdown avoided after Congress passes
short-term spending bill
(http://www.marketwatch.com/story/government-shutdown-avoided-for-now-after-congress-passes-short-term-spending-bill-2016-09-29)
Stocks to watch:PepsiCo Inc.(PEP)(PEP)rose 0.8% after the
soft-drinks maker posted a jump in third-quarter profit.
ConAgra Foods Inc.(CAG) shares surged 7.5% after the company
swung to a first-quarter profit after a steep loss in the same
period last year.
Costco Wholesale Corp.(COST) results are due after the closing
bell. Shares were down 1% at last check.
Inter-Cellular Therapies Inc.(ITCI) shares plunged 64% over news
of a disappointing performance in a clinical trial of its
schizophrenia drug
(http://www.marketwatch.com/story/intra-cellular-therapies-shares-plunge-68-after-study-results-2016-09-28).
(http://www.marketwatch.com/story/intra-cellular-therapies-shares-plunge-68-after-study-results-2016-09-28)EBay
Inc.(EBAY) shares rose 2% after Deutsche Bank reportedly upgraded
shares to buy with a $40 per share price target.
(http://www.marketwatch.com/story/intra-cellular-therapies-shares-plunge-68-after-study-results-2016-09-28)Progress
Software Corp.(PRGS) fell 4.3% after the software company missed
fiscal third-quarter sales and earnings forecasts
(http://www.marketwatch.com/story/progress-software-shares-fall-9-after-results-miss-targets-2016-09-28).
Pier 1 Inc.(PIR) rallied 12% after posting
narrower-than-expected losses
(http://www.marketwatch.com/story/pier-1-shares-rise-on-narrower-than-expected-losses-2016-09-28)
late Wednesday.
Other markets: The Stoxx Europe 600 index was up a fraction, led
by banks and energy stocks. Asian markets
(http://www.marketwatch.com/story/energy-related-stocks-help-rally-asia-markets-as-investors-cheer-opec-deal-2016-09-29)
performed well, led by a 1.4% close higher for the Nikkei 225 index
, which was lifted by gains for exporters, energy companies and a
weak yen.
Gold futures settled 0.2% higher at $1,326 an ounce, while the
dollar was up about 0.2%. Dollar-priced assets tend to move
inversely to the greenback.
--Barbara Kollmeyer in Madrid contributed to this article.
(END) Dow Jones Newswires
September 29, 2016 14:02 ET (18:02 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.