Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Wednesday, 01/23” will be posted around 8:30am EDT, Wednesday.
THE GIST (“THE WHAT”)
Taking a breather from its strong 4-day rally, the S&P 500 index opened the holiday-shortened week on a pessimistic note after China reported that its economy grew by 6.6%, the slowest pace for the country since 1990. Concerns of a slowing global economic growth were compounded after the IMF (International Monetary Fund) lowered its forecast for global economic growth to 3.5% in 2019 and 3.6% in 2020.
Opening lower, the index maintained a steady decline as investors digested several disappointing quarterly results. Losses accelerated in the afternoon, following reports that President Trump had cancelled a proposed meeting with China, citing differences over the intellectual property rights. Losses were pared slightly during the last two hours of the session after White House Economic Advisor Larry Kudlow declined such reports.
Today’s broad-based sell-off dragged the index to breach its 50 DMA (now at 2623), after reclaiming it in the last 2 session. However, managing to hold on to this key support level, the index closed off of session lows at 2632.90, down 37.38 points and losing 1.42% over previous session’s close. Except Utilities, all of the other ten primary sectors traded lower for the day, with Energy and Industrials sectors leading the declines.
THE DETAILS (The “How & Why”):
Oil prices fell sharply on concerns of a softening fuel demand following weaker-than-expected Chinese economic data and a lowered global growth forecast by the IMF. Energy sector was the biggest drag on the index, down 2.20%, with all of its components trading sharply lower for the day.
Trade-sensitive Industrials sector shed 2.07% on signs of China’s economic troubles and renewed clashes between U.S and China. Fueling losses within this sector were sharp declines in Arconic Inc. and Stanley Black & Decker Inc. The worst performer of the session, Arconic Inc., sank 15.98% after its board cancelled its plan to sell the company in a highly anticipated leveraged buy-out deal with Apollo Global Management. Stanley Black & Decker Inc. plunged 15.48% on tepid 2019 guidance.
Semiconductors were some of the biggest decliners of the session, dragging the broader Technology sector lower by 1.76%. Micron Technology Inc., NVIDIA Corp. and Lam Research Corp shed 5.29%, 5.20% and 5.19% respectively. FANG were also broadly lower, weighing down heavily on Communication Services sector to clos
e lower by 1.96%.
However, offsetting these sharp declines within the tech sector was a solid 6.13% rise in eBay Inc. after the Hedge Fund Elliott Management announced a 4.5% stake in the company along with plans to revive this e-commerce company’s business.
Consumer Discretionary, Materials and Financial sectors were the other notable decliners, down 1.79%, 1.37% and 1.09%, respectively. Investors piled up on safe-haven bonds, sending Treasury yields lower. Defensive sectors fared relatively better amid today’s risk-off sentiment. While Consumer Staples, Health Care and Real Estate closed lower by 1.01%, 0.72% and 0.16%, respectively, Utilities was the only sector to manage to gain a slight 0.14%.
Interestingly, PC&G Corporation was the top gainer within the sector, jumping 6.50% on reports that the struggling utility company has secured $5.5 billion in financing from four banks while it prepares to file for a Chapter-11 bankruptcy protection.