Stocks continue selloff on worries over global growth (8/21/15)

The Dow and the Nasdaq entered correction territory on worries over slowing growth around the world, with technology, health care, and energy stocks leading the declines.  

The Dow plummeted 530 points, with all 30 of its components in the red; the S&P 500 Index retreated 64; and the Nasdaq was down by 171. Decliners led advancers by six to one on the NYSE and by nine to four on the Nasdaq. Treasury prices strengthened. Gold futures climbed $6.40 to close at $1,159.60 an ounce. Crude oil slipped below the $40 mark during the day, the first time since February 2009, but closed down $0.87 to settle at $40.45 a barrel.

For the week, the Dow lost 5.79%, the S&P 500 Index fell 5.73%, and the Nasdaq sank 6.71%. 

In earnings news:

-       Deere & Co., the world’s largest farm machinery maker, suffered a 40% drop in profits last quarter due to weak demand overseas and falling crop prices in the U.S. The company reported third-quarter earnings of $1.53 a share, down from $2.33 last year. Revenue fell to $7.59 billion, down 20%. Analysts expected earnings of $1.44 on revenue of $7.17 billion. Deere’s shares (DE) lost 8.11%.

-       Clothing retailer Gap Inc. reported second-quarter earnings of 64 cents a share, in line with estimates. Net sales fell 2% to $3.9 billion. Sales at the company’s flagship stores continued to suffer, while the Old Navy brand was a bright spot. The stock (GPS) fell 4.37%.

-       A consumer shift from desktop to mobile computing contributed to a 13% drop in Hewlett-Packard’s third-quarter earnings and an 8% drop in revenue. H-P posted adjusted earnings of 88 cents a share, versus 89 cents a share a year earlier, and revenue of $25.3 billion. Shares of H-P (HPQ) gained 0.51%.

In other business news:

-       The Caixin China Manufacturing Purchasing Managers’ Index, which is an indicator of China’s manufacturing activity, fell to 47.1 in August, a six-and-a-half year low. Any reading above 50 indicates expansion. The disappointing figure means the Chinese government may have to do even more to reach its goal of 7% growth for the economy, which is still the slowest rate of growth in 25 years. The Shanghai Composite Index finished lower by 4.3%.

-       The U.S. Manufacturing Purchasing Managers’ Index also declined in August, falling to a two-year low of 52.9, according to Markit. The drop was attributed to weak price pressures across the manufacturing sector. 

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Each day, about 500 million tweets are posted to Twitter. That’s 6,000 tweets per second (give or take).

In an era where Big Data rules and companies are scrambling to analyze new sources of information for answers to all of life’s most vexing questions, Twitter must seem like a gold mine.

For example, can Twitter tell us what the stock market will do? The European Central Bank thinks so.

In a study published last month, the ECB found that in the short term, Twitter can accurately predict whether the market will be up or down. That would be very short term, like tomorrow. It monitored tweets that contained the words “bullish” or “bearish” to gauge investor sentiment. A one point increase in the “Twitter sentiment index” would lead to a 12.56 basis point increase in the Dow the following day. But Twitter’s ESP dwindles over the next two to five days, with index levels returning to normal. The ECB also notes that this only works with U.S., U.K., and Canadian stock markets.

Interesting, but is it useful? I’m more concerned about the movement of a specific stock. So it goes to show that the results are only as good as the data being analyzed. The Bank of England found that out the hard way.

Last year, as Scotland was gearing up for the referendum on its independence, the Bank of England was gearing up for financial instability in the event the Scots voted yes. The Bank of England’s Advanced Analytics Division reviewed tweets to see if they could find indicators of potential bank runs. Search terms included “run” and “RBS” (for the Royal Bank of Scotland).

A few days before the referendum, they saw a spike in tweets. To the team’s disappointment, instead of getting a read on U.K. sentiment, they got a play-by-play analysis of a Minnesota Vikings and New England Patriots football game being played 4,000 miles away at the TCF Bank Stadium. The search terms weren’t case sensitive, and RBS was no different than RBs (running backs).

Of course, this could go both ways. Next thing you know, some future Fantasy Football league player will be searching for running back stats and stumble across an imminent bank run in Scotland.