Throughout the stock market's record run, U.S. stocks have largely ignored troubling signs about the global economy. But last night, a 7% plunge in Japan's stock market sent the yen soaring against the dollar and shot bond yields sky-high, raising concerns about the nation's ability to service its massive national debt. Meanwhile, disturbing news from China about industrial purchasing activity also weighed on investor sentiment. Despite some better numbers in the U.S. economy, including a drop in jobless claims and rising new-home sales, the Dow Jones Industrial Average wasn't able to avoid losses, although it recovered from earlier losses of more than 125 points to sit 77 points below breakeven by 10:50 a.m. EDT. Broader U.S. benchmarks fell roughly in tandem with the Dow, while European stock markets dropped between 2% and 3%.
Bucking the downward trend is Hewlett-Packard , which soared 13% after CEO Meg Whitman said last night in the tech giant's quarterly report that her turnaround plan remains on track. The company posted impressive gains in cash flow from operations, and even though overall profit has not yet fully recovered, investors appear to be giving Whitman more latitude to see her long-range strategy play itself out. With initiatives in cloud computing, big data, and the mobile industry, HP is doing its best to move beyond its PC roots and create better growth opportunities for the future.
On the downside, economically sensitive stocks took extensive damage from the bad news overseas. Alcoa leads the decliners with a 2.3% drop. Alcoa has undertaken many cost-cutting measures in order to stay as financially healthy as possible. Yesterday, for example, it announced that it has boosted energy efficiency at an Ohio plant that uses recycled metal. However, a Chinese slowdown poses continuing threats to the aluminum industry and to construction activity in general.
Finally, outside the Dow, Pacific Sunwear has climbed more than 13% after reporting a narrower-than-expected loss for its first quarter after adjusting for one-time items. Although the teen retailer's turnaround hasn't gone as quickly as corporate executives would prefer, same-store sales gains of 2% and guidance for the current quarter that could include a modest profit encouraged investors. With the stock already having posted strong gains recently, though, PacSun will have to follow through on its favorable guidance in order to keep returns coming for shareholders.
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