Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Thursday, 10/11” will be posted around 8:30am EDT, Thursday.
THE GIST (“THE WHAT”)
In its worst day since February 8, 2018, a dramatic sell-off in equities alongside rising Treasury yields dragged the S&P 500 index down to breach key technical support level of 100 DMA for the first time since June 28, 2018. Technology stocks led the broad-based riot as investors fled from riskier assets. The Wall Street’s fear gauge, CBOE Volatility Index (VIX) hit 22.96, its highest level since April 2.
Amid fears of rising interest rates and yet unresolved trade tensions between the U.S. and China, the index shed a sharp 4.78% in its longest losing streak of five straight sessions since November 2016. Breaching through the 2800 level for the first time since August, the index took a sharp leg lower in the last few minutes of the session to close near session lows at 2785.68, down 94.66 points and losing 3.29% over previous day’s close. Two-third of the index’s components closed the session in corrective territory in today’s broad-based sell-off led by Technology stocks.
THE DETAILS (The “How & Why”):
Treasury yields extended their climb following the Producer Price Index (PPI) data indicating that the wholesale inflation rose to a seasonally-adjusted 0.2% in September, after stalling for previous two months. A $60 billion bond auction had a lackluster response amid concerns that yield could rise higher, further fueling the rise in yields.
The 10-year Treasury yield, however, pulled back in the later trading session to settle at 3.22% as investors flocked towards safe haven assets amid a sharp sell-off in equities. Financial sector shed 3.04% on concerns of a flattening yield curve and slowing falling loan growth in rising interest rate environment. Investors will be closely watching key Consumer Price Index (CPI) data for further clues on inflationary trend in the economy.
Technology stocks bore the brunt of investors, falling dramatically in their worst day since 2011, as investors fled from riskier assets with yields rising in the background. All of the 65 components within the sector traded lower for the day, led by Twitter Inc., Advanced Micro Devices Inc. and NVIDIA Corp., down 8.47%, 8.22% and 7.48% respectively. FAANG stocks also faced steep losses on concerns that these tech giants’ high-valuations will be reassessed in rising interest rate environment.
Further fueling the day’s losses was a sharp decline in Energy stocks, down 3.59% as oil prices edged lower follow
ing an API report indicating a major build-up in U.S. crude inventories last week. Industrials, Materials and Consumer Discretionary also experienced steep losses in today’s risk-off session, down 3.47%, 2.54% and 3.74% respectively.
ing an API report indicating a major build-up in U.S. crude inventories last week. Industrials, Materials and Consumer Discretionary also experienced steep losses in today’s risk-off session, down 3.47%, 2.54% and 3.74% respectively.
Interestingly, defensive sectors fared better in today’s broad-based riot, suggesting a sector rotation. Real Estate, Consumer Staples and Utilities closed the session lower by 1.61%, 1.27% and 0.53% respectively.