Stocks Retrace Prior Week Gains
US: S&P 500 Index -4.60%, Dow -2.31%, Nasdaq -4.93%
Europe: STOXX Europe 600 -3.37%, German DAX -4.17%
France CAC 40 -3.81%, U.K. FTSE 100 -3.96%
Asia: Japan Nikkei -3.01%, China Shanghai Composite +0.68%, Korea KOSPI -1.01%
Rates/Commodities: 10-Year Treasury yield -14 basis points to 2.86%, WTI crude oil +1.50%, COMEX gold: +2.18 Continue reading
Yield curve inversions, slowing global growth, trade tensions, and more. Whatever the reason ascribed, this week’s latest sell-off in the market may have provided one of the most important ingredients to a stock market bottom: fear.
As of this writing, the S&P 500 Index is down another 2% on top of the over 3% drop on Tuesday (markets were closed Wednesday to celebrate the life of former President George H. W. Bush 41). Here are our thoughts on the latest sell-off:
Daily Insights
Stocks sliding again as bottoming process continues. After the 3-4% selloff Tuesday, the S&P 500 Index continues to slide in early trading. We view this morning’s action as progress toward a stock market bottom, and we could see enough fear today to set the stage for the next rally based on prior support levels, breadth, volume, put option activity, and other sentiment indicators suggesting a potential washout. While news that Chinese telecom provider Huawei violated economic sanctions against Iran isn’t helping, recent weakness has stemmed from three primary issues, all of which are tied to global growth concerns: Continue reading
Members of the Organization of Petroleum Exporting (OPEC) meet tomorrow in Vienna, with the focus on how to stabilize oil markets after crude oil fell 22% last month. A cut in production from OPEC and Russia is the most likely scenario. The big question is how large of a cut? President Trump has made it very clear he wants lower oil prices, and a large cut (1.5 million barrels a day) could add to global tensions. Meanwhile, a cut of 1 million barrels a day is the low end of what could be adequate to stabilize a market that has an issue with too much supply. Of course, there always could be no cut, but we do not anticipate that happening.
From everyone at LPL Research, we first want to offer our thoughts to former President George H.W. Bush’s family. Most of his life was lived in service to the United States, and he will be greatly missed.
Daily Insights
Tough day for stocks. After their best week of the year last week, followed by healthy gains on Monday, major indexes did an about-face and fell more than 3% yesterday. Several catalysts drove traders to the sidelines (and into Treasuries): Inversion at the short end of the yield curve heightened recession fears and weighed on financials. In addition, the latest headlines from Washington, D.C. suggested President Trump’s successful characterization of what was agreed to with China may have been overstated. Additional details have been scarce and those that were available have conflicted, leading to doubts about whether 90 days is enough time to solidify meaningful terms. Profit taking likely also played a role after such strong gains last week.
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Strengthening economic headwinds have weighed on investors recently, especially as Federal Reserve (Fed) policymakers ramp up rhetoric on the future path of interest rates.
Daily Insights
Short end of the yield curve inverts. The spread between 3- and 5-year, as well as 2- and 5-year Treasury yields turned negative yesterday for the first time since July 2007, though neither are reliable indicators of a pending recession. Instead, investors are effectively putting the Federal Reserve (Fed) on notice that its projected path of rate hikes between now and the end of next year is too aggressive. Fed fund futures currently suggest we’ll likely see two hikes next year at most, which aligns with our outlook, as global investors (and the Fed) start to appreciate the effects of the Fed’s balance sheet reduction, the impact of dollar strength, and the lack of threatening wage pressures.
Since trade tensions between the United States and China escalated earlier this year, uncertainty relative to supply chains, input costs, global economic growth, and corporate profits has weighed on the financial markets.