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Russell 2000, Biotech Get Creamed Again


Today's financial recap and tomorrow's financial outlook.

The S&P 500 was roughly flat today, finishing down 0.1%, but for the second day in a row, we saw serious weakness in risk assets.

Economic data was disappointing.

Across the sea, China's retail sales and industrial production numbers were weak relative to expectations. Stateside, August Industrial Production dropped 0.1%, easily missing the 0.3% expected gain. However, excluding auto production, the number was in-line. Last month's figure was revised down to 0.2% from 0.4%.

August Capacity Utilization was 78.8%, below the 79.3% average forecast

The Organization for Economic Cooperation and Development cuts its 2014 economic growth forecasts for developed economies. It now expects the US to grow 2.1%, down from 2.6% in May. The euro zone also took a hit, with growth estimates cut to 0.8% from 1.2%

Traders headed for cover, and the Russell 2000 (RUT) fell 1.2% while the NASDAQ Composite (COMP) dropped 1.1%.

Momentum favorite Tesla (TSLA) fell 9.1% to $253.86 after Morgan Stanley (MS) expressed caution regarding how fast the stock can rally from current levels. However, Morgan Stanley retained its $320 target price.

Looking at sectors, the biotech sector was once again a source of weakness, as was social media and emerging markets.

Strategists have suggested that traders have been selling high-beta names in anticipation of the hot Alibaba IPO, but the weakness in small caps implies and gains in utilities and consumer staples implies that investors are simply rotating away from risk on fears of rising interest rates, a strengthening US dollar, and geopolitical instability.

Tomorrow's Financial Outlook

The August PPI report will be released at 8:30 a.m. ET. Economists expect a 1.8% year-over-year increase for both the core number and when excluding food and energy prices. Overseas, England will release its CPI and PPI numbers.

Bulls are concerned the S&P 500 will perhaps fall to the 50-day below at 1972.56 as traders continue to take profits.

The brunt of the selling has been in risky sectors as large caps have held up fairly well. Tomorrow, there's a reasonable chance we simply churn back and forth ahead of the FOMC Meeting on Wednesday, and the Swiss rate decision on Thursday. Then, volatility could very well pick up.

Twitter: @Minyanville

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