Stocks got slammed on Tuesday after some worse-than-expected economic data and corporate-earnings reports weighed on the indexes as markets prepared for Wednesday's big Federal Reserve meeting and the release of Q4 GDP data on Friday morning.
First, the scoreboard:
Dow: 17,387.2, -291.5, (-1.6%)
S&P 500: 2,029.6, -27.5, (-1.3%)
Nasdaq: 4,681.5, -90.3, (-1.9%)
And now, the top stories on Tuesday:
1. Tuesday got off to a rough start. The latest report on durable-goods orders showed that orders unexpectedly contracted 3.4% in December, missing expectations for orders to increase 0.3%. Excluding transportation and defense orders, orders fell 0.6%. November's orders were also revised lower, and following this report, which was out at 8:30 a.m. ET, futures got slammed and the market never really recovered from this early blow.
2. Caterpillar also had a terrible earnings report before the market opened, reporting adjusted profit that beat expectations but saying that in 2015, revenue would come in about 10% below where Wall Street had been expecting. The company's comments on 2015 were also generally downbeat, with Caterpillar saying, "We expect world economic growth to only improve modestly in 2015. The relatively slow growth in the world economy and continued weakness in commodity prices — particularly oil, copper, coal and iron ore — are expected to be negative for our sales." Shares of Caterpillar lost about 7% on Tuesday.
3. After Monday's close, Dow member Microsoft also had a worse-than-expected outlook on the year ahead, with the tech giant saying that it expects to have a generally tough road ahead of it. Following this outlook, Nomura's Rick Sherlund downgraded the stock to Neutral from Buy, and Microsoft shares fell more than 9% on Tuesday.
4. And because the 30-member Dow is a price-weighted average, the losses from Caterpillar, Microsoft, United Technologies, and Proctor & Gamble alone took about 100 points off the blue-chip index.
5. On the flipside of the poor durable-goods orders for December was January's consumer-confidence measure from the Conference Board, which showed confidence is currently at its highest level since August 2007. In a statement, the Conference Board's Lynn Franco said, "A more positive assessment of current business and labor market conditions contributed to the improvement in consumers' view of the present situation." And while the poor durable-goods orders number is discouraging, consumer spending still makes up 70% of the economy — if this number is good, people are feeling good, and that makes the economy go.
6. On the housing front, we got pricing data from Case-Shiller that showed home prices rose 0.7% in November, though prices rose at a slower pace over the prior year. In a statement, David Blitzer at S&P Dow Jones Indices said, "Prospects for a home run in 2015 aren't good." New-home sales rose 11.6% to an annualized pace of 481,000 in December, topping expectations for new home sales to rise 2.7% in December, though Ian Shepherdson at Pantheon Macro said this number was likely aided by better-than-expected weather and doesn't represent a break from the current trend.
7. The Federal Reserve is set to announce its latest monetary-policy decision on Wednesday, and while the market isn't expecting any surprises from the Fed, Morgan Stanley economist Ellen Zentner is looking ahead and has revised her forecast for the Fed's first interest-rate hike. She now predicts it will come in March 2016, rather than her prior expectation of January. Zentner cited the likelihood of disappointing inflation data later this year as a catalyst for the Fed to remain patient in changing policy.
8. Earnings season is rolling along, and the marquee report on Tuesday came from the world's biggest company: Apple. Apple reported blowout earnings, with the company beating on profit, sales, and reporting record iPhone sales. In the holiday quarter, which is Apple's fiscal first quarter, the company earned $3.06 per share on revenue of $74.6 billion as iPhone sales totaled 74.5 million units. Gross margins also grew t0 39.9% while the company's cash hoard grew to $178 billion.
9. The impacts from the Swiss National Bank's decision to remove its peg against the euro are still rolling in, and on Tuesday Bloomberg News reported that JPMorgan turned out a big winner, turning a profit of $300 million on the move.
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