After The Close
The stock market opened dramatically lower this morning, found some support around noon, and managed to partially recover late in the session. As has been the case lately, investors seemed worried that trade relations between the United States and China could erode further, and that the global economy could suffer, as a result. In addition, traders have been buying government Treasuries, and recent developments in the fixed income markets may hint at a lack of confidence in the long-term economic outlook. At the close of the session, the Dow Jones Industrial Average was down about 221 points; the broader S&P 500 Index was off 19 points; and the NASDAQ was lower by 60 points. There was a negative bias to the session, with decliners well ahead of advancers on the NYSE. From a sector perspective, the technology and healthcare stocks declined quite a bit, while the defensive utility issues managed to show some relative strength. Clearly, traders were searching for a safe haven in a challenging climate.
There were no major economic reports issued this morning. However, tomorrow, will be a much busier day. Specifically, we will get a look at the latest weekly initial jobless claims, the monthly pending homes sales figures, as well as an updated first-quarter GDP number. Elsewhere, in the corporate arena, we heard from a few leading apparel retailers today. Specifically, shares of Abercrombie & Fitch (ANF) and Canada Goose Holdings (GOOS) lost ground, as investors were disappointed with the recent quarterly reports from those companies.
Technically, the stock market has pulled back quite a bit in the month of May. The recent bout of selling has put the S&P 500 Index close to its 200-day moving average, located near the 2,775 mark. Hopefully, this area will provide some support for equities. However, with no sign of a resolution to the nation’s trade dispute with China, it is unclear what will serve as the catalyst needed to spur on the bulls.
– Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
In fact, the Dow's 131-point advance had fully given way as we approached the noon hour in New York, with not only the 30-stock Dow going negative, but the S&P 400 and 500 faltering as well, along with the Russell 2000. Only the NASDAQ held on, but its once-formidable rise had been notably capped. As before, the emphasis was largely on trade, at that time, with some of the bulls suggesting that a deal still likely would be reached but that it could take many months to do so. However, with the stakes so high, anything less than an accord would seem to be out of the question.
Meantime, the market drifted slightly lower as the noon hour arrived before edging back into the plus column as morning ended. In fact, so focused was Wall Street on trade that even good economic news went unnoticed, or at least looked to largely go unnoticed. Specifically, 30 minutes into the trading session, the Conference Board reported that its Consumer Confidence Index had increased to 134.1 in May from 129.2 in April. That rise (a flat reading had been forecast) came despite the fact that a trade deal with China has remained elusive. What is helping confidence is that business and labor conditions are strong in spite of global headwinds.
The stock market would then drift modestly higher through the lunch hour, but never straying too far from the unchanged mark, as encouraging news on consumer confidence was offset by the dour reaction to the President's musings on trade with China. Then, as we moved inside the final two hours, there was some mid-afternoon selling, which pushed the Dow down by some 50 points. The S&P 500 and the small-and-midcap composites also trended lower, while the NASDAQ initially hung onto a small advance. The market also was under pressure from falling bond yields, which took an especially harsh toll on the banking shares.
The selloff deepened as we hit the final hour of the trading day, with the Dow's descent surpassing 150 points as we entered the homestretch. The drop in bond yields, meantime, which prompted one brokerage house to say that we could be on a recession watch, as the yield on the 10-year U.S. Treasury tumbled to 2.26%. That is a 19-month low in that return. Thus, there was the logical belief that the outlook for our nation's economy was deteriorating. Whether this is an overreaction is unclear as this point. But just the fact that such speculation is taking place amid a faltering trade outlook is giving investors some concerns.
The market then continued to drop, with the Dow pushing down to a session-worst decline of 243 points. The NASDAQ, too, fell under some pressure, but much less so, falling back by 33 points, at its low. Thus, the day, which started out focused almost entirely on trade shifted gears late in the day to concentrate somewhat on falling bond yields. And that isn't a bullish development. In the end, the blue chips were off by 238 points, swooning badly at the close. The S&P Mid-Cap 400 would be hit even worse on a percentage basis, as the bears flashed some strength late in the day.
Looking ahead and after the late selloff in New York, we see that stocks were lower in Asia overnight, while in Europe, the major bourses are showing early steep losses on intensifying global growth concerns, as well. Also, Treasury note yields, off to a close of 2.27% yesterday, and sparking recession fears in the process, are now at 2.23%. Further, oil prices are moving downward. What does this mean for our equity market? The early read on the futures suggests a sharply lower opening when trading resumes later this morning following yesterday's major retreat.
