Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 03/11” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
A surprisingly weak jobs data spooked investors a day after the European Central Bank (ECB) slashed its growth forecast for Eurozone for 2019. In another sign of weakening global economic growth, Chinese exports fell sharply by 20% in February, further weighing down on investor sentiment. The S&P 500 closed lower for the fifth straight session and registered a worst weekly decline since December 2018.
Opening significantly lower, the index maintained losses for most part of the session amid a broad based sell-off led by Energy stocks. Bouncing off the day’s low of 2722.27, losses were pared as defensive sectors flipped into green during the afternoon session. The index closed below the key technical support of 200 DMA (now at 2750.86) for second straight session, but well off session lows at 2743.07, down 5.86 points and losing 0.21% over previous day’s close.
THE DETAILS (The “How & Why”):
The Bureau of Labor Statistics released the Non-Farm Payrolls data that indicated that the U.S. economy added only 20,000 new jobs in February. This figure was well below the expected figure of 180,000 and far below the 311,000 jobs added in January. Coupled with the signs of weakening economic growth overseas, this latest disappointing economic data stroked fears of an impending recession, sending the index sharply lower at the open.
Several economists however underplayed the weak jobs data, blaming government shutdown and bad weather while justifying it as a natural pullback from an exceptionally strong January. On the bright side, the unemployment rate fell to 3.8% in February and the average hourly wage rate increased at a better-than-expected rate of 3.4% year-on-year.
Oil prices fell sharply in the morning session following weak jobs data, sparking a dramatic sell-off in Energy stocks. Energy sector was the biggest drag on the index, down 1.95%. Noble Energy Inc., EOG Resources Inc. and Devon Energy Corp. were the worst decliners of the session, falling 5.39%, 5.37% and 4.81%, respectively. Reports that the world’s largest sovereign wealth fund in Norway plans to dump oil and gas companies that operate solely in exploration or production from its benchmark index also weighed down heavily on the Energy sector.
Consumer Discretionary sector added to the day’s losses as retail and departmental chain stocks extended their decline. Health Care and Industrials also shed 0.25% each. While Technology stocks fell sharply at the open on reports that Democratic presidential candidate Elizabeth Warren has proposed an aggressive plan to break up the country’s biggest tech giants like Amazon, Alphabet and Facebook in an attempt to tame their growing influence, the broader sector however trimmed losses in the latter session to close mostly unchanged for the day.
The index erased most of the day’s sharp decline as investors piled up on defense play stocks and safe haven assets amid growing signs of weakening economic growth. Utilities, Materials, Consumer Staples and Real Estate all closed higher for the day. Several homebuilder stocks also jumped after the Commerce Department reported that the U.S. homebuilding rose more than expected in January and construction of single-family housing jumped for the first time in four months.
Several important economic data including retail sales, CPI and PPI are scheduled to be released next week and could drive price action as investors look for further insights into the health of the economy. Markets will also be closely watching the key Brexit vote next week and await any fresh headlines around U.S. – China trade negotiations.