Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan” will be posted around 9:00am EDT, every trading day.
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THE GIST (“THE WHAT”)
Further evidence of a slowing U.S. economy sent the S&P 500 index plunging during the early session. The index plummeted 30 points following a softer-than-expected ISM non-manufacturing reading that fell to the lowest level in three years.
As investors grapple with the prospects of an impending recession, increasing odds of another quarter-basis points Fed rate cut overshadowed these fears. Staging a solid rebound, the index erased early session losses and snapped a brutal 2-day losing streak, closing the roller-coaster session near day’s highs at 2910.63, up 23.02 points and gaining 0.80% over previous session’s close. Technology and Energy led today’s broad-based bullish reversal that helped claw back some of this week’s steep losses.
THE DETAILS (The “How & Why”):
While investors digested the weakening U.S. manufacturing activity and slowing job growth, softer-than-expected ISM’s non-manufacturing index fueled the concerns that trade and political uncertainty have started seeping into the service sector that was largely assumed to be insulated from the impact of U.S. – China trade tensions and represents close to 70% of the economic activity.
ISM’s non-manufacturing purchasing managers’ index (PMI) for September missed estimates and fell to a reading of 52.6, giving further evidence of slowing pace of economic activity. Markets will be closely reading into Friday’s jobs data and Consumer sentiment numbers for further insights into the health of the economy.
Treasury yields extended their decline, with short-term yields falling the most amid growing expectations of a third rate cut by the Fed at the end of October in the wake of deteriorating economic data. Oversold cyclical and growth stocks that faced the brunt of this week’s ugly selling were bought back on the back of increasing odds of a Fed rate cut.
Technology sector posted the biggest percentage gain of 1.24%. NVIDIA Corp and Micron Technology Inc. were the strongest performers within this space, jumping 4.78% and 3.53%, respectively. Facebook Inc. led the FAANG components higher with a 2.74% gain.
Weighed down by concerns of slowing energy demand, oil prices logged an eight day losing streak and settled at its lowest level in two months. Beaten-down energy, transportation and airline stocks, however, gained some of their lost ground. Hess Corp., Diamondback Energy Inc. and Marathon Oil Corp. gained more than 3% apiece.
Real Estate and Health Care were the other major gainers in today’s broad-based relief rally. Falling yields, however, capped gains within the Financials space. Bank of America Corp, Goldman Sachs Group Inc. and JPMorgan Chase & Co. all traded modestly lower for the day.