Stocks sink as Apple, Facebook pace the tech wreck

Weakness in some of the biggest techn companies sent markets tumbling, as pessimism about escalating trade tensions between the Trump administration and China added to concerns about potential new regulations coming for the industry.

(Bloomberg) — Weakness in some of the biggest technology companies sent U.S. stocks tumbling Monday as pessimism about escalating trade tensions between the Trump Administration and China added to concerns about potential new regulations coming for the industry. The dollar steadied and Treasuries crept higher for a fifth straight session.

All major American benchmarks closed down more than 1.5 percent. Software developers and semiconductor manufacturers were the worst performing groups in the S&P 500 Index. The Nasdaq 100 Index plunged more than 3 percent to the lowest since April on renewed concern that trade fights will tamp down global demand and disrupt supply chains for the major technology companies that have carried the bull market for almost 10 years. In addition, the biggest drop in homebuilder sentiment in more than four years hammered the housing sector.

“The easiest way to stop the selloff would be for Trump and [Chinese President] Xi to reach some kind of agreement, even if it’s just no new tariffs and/or keeping the rate at 10 percent through Jan. 1,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors. “The U.S. equity market is starting to price in the supply chain disruption, which is doubly painful because of stretched margins.”

“You’re seeing weakness in semiconductors because of Nvidia’s weak earnings that were released last week,” said Ryan Nauman, market strategist at Informa Financial Intelligence. “Facebook is having some more issues with potentially covering up the Russia hack in the 2016 election. Apple, they’re getting downgraded based on demand. A lot of companies and analysts are concerned that the demand for the iPhone has decreased. The trade concern isn’t helping Apple much either with the supply chain.”

Investors are reassessing markets after several weeks of volatility spurred by fears of trade conflicts. The Asia-Pacific Economic Cooperation failed to agree on a joint statement for the first time in its history, and U.S. Vice President Mike Pence attacked China at a weekend summit, quashing optimism that relations would improve at Group-of-20 meetings starting next week. In addition, rising U.S. interest rates are pushing up financing costs and threatening global growth.

“Any margin for safety with global growth rates is gone,” said Tim Courtney, chief investment officer of Exencial Wealth Advisors in Oklahoma City. “Now we’re going into a period of slow growth. We’re in no-man’s land — sitting, stuck in a slow growing, slow inflationary environment.”

In Europe, the Stoxx 600 Index fell following a plunge in Renault SA on misconduct allegations against the carmaker’s leader, Carlos Ghosn. European bonds mostly edged lower. The pound fluctuated as U.K. Prime Minister Theresa May appealed to business leaders to help deliver her Brexit deal, and Gibraltar emerged as a fresh sticking point.

Elsewhere, the Australian and New Zealand currencies slipped after Pence’s remarks. Bitcoin fell below $5,000 for the first time since October 2017. Crude closed in on $57 a barrel as energy stocks rebounded.

Local banks get a fresh reminder that loans still can go bad

Loans can go bad, remember?

Local business banks are seeing some commercial loans blow up for the first time since their balance sheets were wiped clean following the housing bust and Great Recession. Investors aren’t waiting around for explanations before punishing the stocks of banks with even a hint of credit worries.

The good news for now is that there are no discernible trends explaining the loan busts. They’re happening to companies for myriad reasons, bankers say, and by and large loan quality remains solid by historical standards. But, with investor pressure to show loan growth still intense, some banks inevitably will fall prey to doing things they shouldn’t. It will have to wait until the next recession, when bad lending practices always get exposed, to see which ones.

Three prominent local banks that specialize in lending to midsize businesses—Rosemont-based Wintrust Financial, Chicago-based MB Financial and CIBC Bank U.S.A.—all showed meaningfully higher levels of bad loans in the third quarter compared with the previous year.

“There’s no bubble out there that we see,” Wintrust CEO Edward Wehmer says in an interview. “Credit couldn’t get any better, and you’re just seeing a return to normalcy.”

Wehmer said essentially the same thing to analysts in Wintrust’s third-quarter earnings call, but it didn’t prevent investors from slicing nearly 14 percent off the stock in the five days after the quarterly report. Wintrust since has recovered some and now is about 7 percent off its pre-earnings level.

Likewise, loan charge-offs at MB Financial jumped to $32 million from $6 million the quarter before. The bank in its earnings report blamed “one loan relationship” that went bad. Still, apart from the one big loan that blew up, MB Financial’s underlying loan quality is deteriorating as well. Bad loans at the end of the third quarter were $74 million, up from $51 million the year before. Potential problem loans—borrowers that are stressed but not yet past due—rose to $245 million from $161 million.

CEO Mitch Feiger didn’t respond to a request for comment.

Executives at Cincinnati-based Fifth Third Bancorp, which expects to close early next year on its pending acquisition of MB Financial, didn’t sound alarmed. In Fifth Third’s earnings call, Treasurer James Leonard described it as “just one credit (that) appears to be more of an isolated idiosyncratic event, which does not taint the rest of the portfolio.”