Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Friday, 01/04” will be posted around 8:30am EDT, Friday.
THE GIST (“THE WHAT”)
Reaffirming fears of a global recession, Apple Inc. slashed its revenue outlook citing slowing Chinese demand and sparking a dramatic sell-off within the Technology sector. Panicked investors continued pilling up on safe haven assets like bonds, sending both short-term and long-term Treasury yields to hit their lowest levels in almost a year.
Falling sharply during the first hour of the session, the index attempted to reverse trend, but losses accelerated following a weaker-than-expected ISM Manufacturing Index that fell to its lowest level in two years, suggesting a slowing pace of manufacturing activity. With nine out of the ten primary sectors closing sharply lower for the day, the index closed near session lows at 2447.89, down a whopping 62.14 points and losing 2.48% over the previous session’s close. The only sector to sport decent gains in today’s volatile and choppy session was Real Estate, rebounding from previous session’s sharp sell-off.
THE DETAILS (The “How & Why”):
Technology sector led the broader index lower, falling sharply by 5.07% after a rare warning by Apple Inc. sparked a dramatic sell-off within the sector. In its biggest one day loss, the iPhone maker tumbled 9.96% after lowering its quarterly revenue guidance to $84 billion from the previously projected $89 billion. The tech giant fell to the fourth spot for being the most valued publicly traded U.S. company, after sporting the top spot only two months ago.
Chipmakers were also the worst performers of the session, led by Apple suppliers Skyworks Solutions Inc., Advanced Micro Devices Inc. and Qorvo Inc., all plunging 10.65%, 9.45% and 9.06% respectively. Weakness in FAANG stocks also weighed down heavily on Consumer Discretionary and Communication Services sectors. Netflix Inc. was the only FAANG component to close the session higher by 1.32%. Facebook Inc., Amazon Inc. and Alphabet Inc. all closed lower for the day by 2.90%, 2.52% and 2.77% respectively.
Trade-sensitive Industrials and Materials were the other notable decliners, down 2.96% and 2.76% amid recession jitters. Airline stocks fell sharply across the board, led lower by Delta Air Lines Inc. that tumbled 8.94% after it warned investors about weaker-than-expected sales and revenue guidance for the fourth quarter of 2018. American Airlines Group Inc., Alaska Air Group and Southwest Airlines Company declined 7.45%, 5.53% and 3.25% respectively to be among the worst performers within the Industrials sector.
Investors continued to flock towards the safety of bonds in the wake of several factors weighing down on equity markets. The 10-year Treasury bond yield fell to its lowest level since January 2018, at 2.557% following a big drop in ISM manufacturing index that stoked fears of a weakening U.S. economy. Financials sector shed 2.28% alongside falling yields.
While oil prices extended their gains, rising 1.2% on the back of a weakening U.S. dollar and expectations of output cuts by Saudi Arabia, the Energy sector traded lower for the day on concerns of falling global demand. The only sector to close the session in green was Real Estate, up a modest 0.49%, benefiting from falling yields and rebounding from previous session’s sharp sell-off. Utilities sector managed to hold on to slight gains, closing relatively unchanged with a 0.08% gain.
Investors will be keenly looking forward to Federal Reserve Chairman Jerome
Powell’s comments Friday morning, expecting a dovish tone on rate hikes given the recent extreme volatility in equity markets. Friday’s jobs data will also be a key focus of investors for signs of slowing economic activity after a weak ISM data.