Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 10/08” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
In its worst day since July 2018, the S&P 500 index extended its slide with Technology sector in the lead to erase a month’s gain as investors continued to shun equities. Historically low unemployment rates and a creeping up wage rate indicated rising inflationary pressures in the economy with an expectation of an aggressive response from the Federal Reserve.
Falling sharply below the psychologically important 2900 level, the index found support at the 50 DMA trend line (now at 2877.14) and closed off of session lows at 2885.57 (just 1.43 points below the level indicated by our models to shift our current neutral bias to bearish! Click here to read the full report.), down 16.04 points, losing 0.55% over previous day’s close and with a weekly loss of 0.97%. While most of the sectors were broadly sold-off as yields spiked for the second day in a row, Utilities sector provided the much needed support as investors piled up on this defensive sector.
THE DETAILS (The “How & Why”):
The 10-year Treasury yield settled at 3.23% following a second round of upbeat economic data this week. While the Jobs report came in below expectations at 134,000 and the unemployment rate fell to a 48-year low, a rise in wage growth by 0.3% added to the concerns of a slowly creeping inflationary pressure that could trigger an aggressive response from the Federal Reserve. Separately, trade deficit rose 6.4% to a 6-month high of $53.2 billion for the month of August.
Technology and Communications sectors were the worst performers, leading the broader index lower for the second straight day, falling 1.27% and 1.04%. Semiconductors remained under pressure as investors digested stock downgrades of several chip stocks this week. Qorvo Inc., Nvidia Corporation and Skyworks Solutions Inc. fell 4.57%, 3.38% and 3.84% respectively. IPG Photonics Corp. was the worst performer of the session, plummeting 13.80% after the laser maker lowered its third quarter revenue guidance.
Consumer Discretionary, Materials and Industrials were the other notable decliners of the session, down 0.78%, 0.81% and 0.49% respectively. Consumer Discretionary was the worst performer this week with a weekly loss of 4.37% as retail and department chain stocks were broadly sold off this week on concerns of rising costs after Amazon.com Inc. announced early this week a hike in its minimum wages for its employees to $15 per hour.
Financials sector closed lower by 0.42%, falling with the rest of the market after trading higher during the early session. Interestingly, Utilities sector outperformed for the second day in a row, up a solid 1.57%, to be the only sector supporting gains as investors favored defensive stocks in today’s broad-based sell-off. Interestingly, it was also the best performing sector this week, up 1.86% on a weekly basis amid a sharp rise in Treasury yields.
Energy sector was also a strong performer this week, up 1.86% with oil prices hovering near their four-year highs on the back of growing concerns of a tightening global crude supply ahead of Iranian sanctions. The sector, however, shed a slight 0.04% in today’s session as oil prices settled mostly flat but still staying close to their four-year highs.