At the Close: S&P 500 Drops Most Since August; Goldman Sachs Sinks on Legal Concerns

Stocks tumbled today, reversing early morning optimism brought on by a stronger-than-expected U.S. GDP number and a surprise ECB rate cut.

Reuters

The S&P 500 dropped 1.3% to 1,747.15–its largest fall since August 27–while the Dow Jones Industrials fell 1% to 15,593.89–its biggest drop in almost a month. Among the stocks dragging the market down: Goldman Sachs (GS), which fell 2.4% to $159.64 after it said an investigation into its mortgage-bond business could boost its legal costs, AT&T (T), which dropped 2% to $35.11 after it acknowledged charging the US government for access to customer phone records, and WPX Energy (WPX), which fell 13% to $18.65 after releasing disappointing results. Just two Dow components–International Business Machines (IBM) and EI Du Pont De Nemours (DD)–finished the day in the black.

Why the sudden impulse to sell? Blame the ECB, says CRT Group’s David Ader. He writes:

Today's monetary policy surprise was credited for a broader risk-off move across asset classes with domestic equities selling off sharply and Japanese and European stocks taking a hit as well.  The yen was solidly bid after breaking to new cheaps in the immediate wake of the ECB. The bulk of the day's price action was consistent with a market caught on the wrong side of the central bank decision, a move resembling September's price action that followed the FOMC's no-taper announcement.  All of this suggests attention was focused on overseas events, leaving limited interest or focus on setting up for Friday's employment report.

Tomorrow, the focus should be back on the U.S., where October payrolls will finally be released. Capital Economics’ Paul Ashworth tells investors what to expect:

The Federal government shutdown is unlikely to have had a major bearing on payrolls in October. But it will probably have reduced the household measure of employment and pushed the unemployment rate up. The payroll survey counts the number of people paid during the reference week (6th-12th), so because Federal government workers affected by the shutdown (1st-17th) are receiving back pay, they will be counted as employed. Since the knock-on effect on the private sector was probably small, we estimate that payrolls rose by 140,000 last month. But in the household survey, those government workers will be classed as unemployed. As such, a fall in household employment probably pushed the unemployment rate up, perhaps to 7.5% from 7.2%. Since government employees have returned to work, the fall in employment and rise in the unemployment rate should be reversed in November.

Will tomorrow’s report reverse today’s losses?