Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Tuesday, 01/15” will be posted around 8:30am EDT, Tuesday.
THE GIST (“THE WHAT”)
Fears of a slowing global economy were revived following a surprise drop in China’s exports and imports for the month of December. China’s trade surplus with the U.S. hit a multi-year high, raising concerns of how this might impact the second round of U.S. – China trade negotiations due to take place at the end of this month.
While semiconductor stocks that generate significant amount of their revenue from China were the worst impacted by recession jitters, banks stocks outperformed after Citigroup Inc. issued a brighter outlook for the industry. Taking a leg lower at the open, the S&P 500 index bounced off the day’s low of 2570.41 as bank stocks provided a much needed support.
Trading within a tight range for most part of the session, the index closed off of session lows at 2582.61, down 13.65 points and losing 0.53% over the previous session’s close. Excluding Financials, all the other ten primary sectors closed the session lower. Today’s price action tested the upper bound of our models’ trading range several times throughout the session, registering the day’s high under 2 points above it at 2589.32. (Read the full text/outlook published before the market open).
THE DETAILS (The “How & Why”):
Leading the index lower in today’s broad based sell-off was PG&E Corp, plunging dramatically by 52.36% after the struggling utility company announced bankruptcy seeking protection from significant liabilities close to $30 billion from the California wildfires. Utilities sector was the worst performing sector of the session, down 2.23% with all of its components trading lower for the day.
Dragging the Technology sector lower by 0.92% were semiconductor stocks that earn significant amount of their revenues from Chinese markets, broadly lower on concerns of an economic slowdown in China. Western Digital Corp., Qorvo Inc., Microchip Technology Inc. and Micron Technology Inc. were among the worst performers of the session, declining 4.92%, 3.94%, 3.75% and 3.72%, respectively.
Excluding Facebook Inc. that gained 1.11%, all the other FAANG stocks were sold-off. Health Care also shed 1.16%, giving up some of its recent strong gains on the back of profit-taking.
In a biggest deal in the gold mining industry’s history, Newmont Mining Corp. announced a $10 billion buy-out deal of its rival Goldcorp Inc., driving its stock price lower by 8.89% on concerns that it might be overpaying for this competitive advantage. The broader Materials sector closed the session lower by 0.77%.
Among the other notable decliners were Consumer Discretionary, Consumer Staples and Real Estate, all lower by 0.68%, 0.49% and 0.30%, respectively. Oil prices also extended its previous session’s decline on renewed recession jitters, dragging the Energy sector lower by 0.19%.
Amid this broad-based sell-off, the only sector supporting advances was Financials, up 0.73% on the back of the brighter industry outlook portrayed by Citigroup Inc. Kick starting the earnings season; the blue-chip bank rose 4.06% intraday despite missing fourth-quarter earnings estimates but predicted a solid rise in its lending revenues for 2019, boosting other bank stocks. JP
Morgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. all rose ahead of their earnings release this week.