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THE GIST (“THE WHAT”)
The S&P 500 index’s early session attempt to rebound from Wednesday’s Fed-led sell-off was erased after President Trump escalated trade tensions with China. Investors piled up on safe-haven bonds, sending the Treasury yields plunging to November 2016 lows. Oil prices tumbled on concerns of global economic growth slowdown, sparking an intense selling of Energy stocks.
Financials, Energy and Consumer Discretionary sectors fell sharply to drag the index lower; ending the wild session near day’s low at 2953.56, down 26.82 points and losing 0.90% over previous session’s close. Defensive sectors, however, benefited from falling yields and helped limit losses.
THE DETAILS (The “How & Why”):
President Trump renewed his trade war against China after tweeting that a new round of 10% tariffs on the remaining $300 billion worth of Chinese imports could be imposed starting September. Investors flocked toward safe-haven assets, piling up on Government bonds and sending Treasury yields to their November 2016 lows. The 10-year Treasury yield settled 13.88 basis points lower at 1.885%.
Bank stocks tumbled alongside falling yields, leading the broader Financials sector sharply lower by 2.32%. Morgan Stanley, Bank of America Corp, Citigroup Inc. and Goldman Sachs Group Inc. all fell more than 3% apiece. Prudential Financial Corp., Unum Group and Comerica Inc. were the worst decliners within this space, falling sharply by 10.09%, 6.38% and 6.54%, respectively.
Escalating trade tensions between the world’s two largest economies also weighed down heavily on Energy stocks. Oil prices had their worst day since February 2015, plunging close to 8% on concerns of slowing global economic growth in the wake of intensifying U.S. – China trade war.
Energy sector was the biggest drag on the index, closing 2.28% lower. Concho Resources Inc. fueled the declines, tumbling 22.19% on missing earnings estimates. EQT Corp., Noble Energy Inc. and Pioneer Natural Resources Co were the other major decliners, falling 9.20%, 7.20% and 7.59%, respectively.
Dramatic selling of retail and department chain stocks on reports of a new round of tariffs on Chinese consumer goods imports dragged the Consumer Discretionary sectors lower by 1.30%. Best Buy Co Inc. and Kohl’s Corp were the worst decliners within this space, falling 10.79% and 7.82%, respectively. Hanesbrands Inc., Nordstrom Inc., Limited Brands Inc., Macy’s Inc., Under Armour Inc. and Mattel Inc. all tumbled more than 6% apiece.
Trade-sensitive sectors including Industrials, Technology and Materials added to the day’s declines. Caterpillar Inc., Boeing Co and Deere & Co all shed 3.71%, 2.02% and 2.68%, respectively. In Technology space, Apple Inc. dropped 2.16% on concerns that escalating trade tensions with China could directly impact the prices of iPhones.
Chipmaker stocks being most exposed to Chinese markets also plunged sharply. Analog Devices Inc., Salesforce.com Inc., Intel Corp., Microchip Technology, Micron Technology Inc., NVIDIA Corp and Qualcomm Inc. all closed lower by more than 2% apiece.
On the bright side, modest gains in Utilities, Real Estate and Health Care stocks helped limit day’s losses. Investors favored defensive stocks over growth stocks amid falling Treasury yields, lifting Utilities, Real Estate and Health Care by 1.01%, 0.22% and 0.10%, respectively.