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Anyone could have predicted that it was going to be an ugly day. But you would have had a hard time predicting HOW it would be so ugly.But first, the scoreboard:
S&P 500: -19
And now, the top stories:
- The day really started at 4:30 PM ET yesterday when Apple reported blowout earnings but missed on estimates for how many iPads it would sell. That combined with mediocre IBM earnings smashed the overall market, and made it clear that today would open to the downside.
- But the overnight action was not actually so horrible. The Shanghai market is continuing its parabolic rise. Japan ended up modestly. So things were fine then.
- Europe was fairly quiet, with France excepted. Ongoing riots against pension reforms are clearly disrupting the country. Still, the reverberations on the country and continent level are still modest.
- Things changed dramatically at about 7:00 AM when the People’s Bank of China announced a surprise .25 rate hike. That sent the dollar surging and gold plunging. It’s not that a .25 rate hike is all that much — and this is far from a yuan hike, which is what everyone is waiting for — but it signals a tension release. Perhaps, if China is going to start taking steps to tighten things and eventually push its currency up, the rest of the world can get off the competitive devaluation bandwagon. Two things to note: the first is that the rate hike was the first since the crisis. Also, it was a .25 bps rate hike, not .27 (which is their traditional increment due to the history of the abacus.
- Prior to the bell there was a slew of earnings from the likes of Bank of America, Goldman Sachs, Coca-Cola, and Johnson & Johnson. Goldman easily surpassed expectations. BofA was alright, though not horrible. Both Coca-Cola and Johnson & Johnson were pretty strong, though none were enough to get the market in the black.
- Despite the weak open — mainly thanks to Apple — there were signs of a bullish turnaround. Equities tried to rally a couple of times, and Apple come close to making it back towards even. And the fact that the selloff in areas like precious metals and Treasuries was worse than equities suggested that the traditional back and forth between risk-on and risk-off assets was being won by the risk-on side.
- Things really got ugly though in the afternoon after Bloomberg broke the news that a consortium consisting of the NY Fed, PIMCO, and BlackRock were suing BofA over mortgage putbacks. This is the huge fear in the market right now — arguably moreso than the foreclosure mess — and the fact that all these institutions are going after Bank of America is frightening. The fact that that the NY Fed is pursuing them is particularly surprising, seeing as it’s unfathomable to think they’d do anything not in the interest of financial stability.
- This sent financials — and eventually the rest of the market — into a tailspin. Bank of America ended off around 4.5%. Other big banks got hammered as well, and in the end the major indexes all turned broadly red, as noted above.
- The big winner of the day: the US dollar!
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