Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 03/25” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
Mirroring global equity markets, the S&P 500 index plunged on signs of global economic recession, erasing entire week’s gain and falling back to the key 2800 level. Panicked investors flocked towards safety following downbeat economic data out of Europe and the U.S., sending bond yields sharply lower across developed markets. A reliable indicator of recession, ‘the yield curve’ inverted for the first time since 2007, sparking a panic reaction from investors that sold-off riskier assets in favor of safe-haven bonds.
Strong bond rallies send Treasury yields to their lowest levels in a year. Along with banks stocks, all the other growth stocks were broadly sold-off on concerns of a global economic slowdown. The index wiped off the entire gain for the week and closed near session lows at 2800.71, down sharply by 54.17 points and losing 1.90% over previous session’s close.
THE DETAILS (The “How & Why”):
Manufacturing activity fell across the euro zone, with Germany registering a worst decline in its manufacturing activity in more than six years. Compounding concerns of global economic recession, the IHS Markit’s purchasing manager’s index in the U.S. fell to a 21-month low in March and wholesale inventories rose 1.2% in January, sending panicked investors flocking towards safety-haven bond assets.
The 10-year Treasury yield fell to 2.444%, while the 3-month yield settled at 2.46%, inverting the yield curve for the first time since 2007 further stoking concerns of an impending recession and sparking a panic reaction from equity investors.
Falling yields sparked an intense selling in banks and financial stocks as lower yields hurt profitability of these interest-sensitive companies. Bank of America Corp and Citigroup Inc. fell more than 4% each. Wells Fargo & Co., Morgan Stanley and JP Morgan Chase & Co, all fell more than 3% each. Leading the broader Financials sector lower to 2.77% were SVB Financial Group and Brighthouse Financial Inc., both tumbling 7.06% and 6.84%, respectively.
Except Gold, all the other precious metal prices fell sharply to hurt mining stocks. Oil prices also pulled back from their four-month highs on concerns of falling energy demand. Materials sector was the worst underperformer of the session, closing lower by 2.99% led by a sharp 5.73% decline in Freeport-McMoRan Inc.
Energy, Technology and Industrials sectors further fueled the day’s losses, registering losses of 2.62%, 3.35% and 2.27%, respectively. Boeing Inc. continued to be punished; shedding another 2.83% following reports that an Indonesian airline has cancelled $5 billion worth of order for 49 Boeing 737 Max 8 jets after these models were involved in two fatal crashes.
Lower-risk and high-dividend paying defensive sectors, however, fared relatively better in Friday’s panic sell-off. Real Estate and Consumer Staples registered modest declines of 0.47% and 0.23%. Utilities was the only sector to support gains, closing broadly higher by 0.69%. On the earnings front, Tiffany & Co. gained 3.15% on posting mixed fourth-quarter performance. Meanwhile, Nike Inc. and Cintas Corp. fell 6.61% and 6.52%, respectively on missing earnings estimates.