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THE GIST (“THE WHAT”)
In an attempt to avert recession, the ECB (European Central bank) pushed its benchmark interest rate further into negative territory. The S&P 500 index jumped higher for the third straight session on hopes that the Federal Reserve could soon follow suit amid growing criticism from President Trump.
As investors digested conflicting messages out of the White House around U.S. – China trade headlines, the index whipsawed for most part of the early session. However, a slow grind higher in the afternoon session pushed the index closer to all-time high of 3027.98 reached on July 26, 2019. Pulling back on registering the day’s high of 3020.74, the index closed off of session high at 3009.57, up 8.64 points over previous session’s close and only 0.6% away from all-time highs.
THE DETAILS (The “How & Why”):
The ECB announced its next round of monetary easing to avert recession and to boost the Eurozone inflation closer to its official target of ‘just below 2%’. The bank pushed its benchmark interest rate further into negative territory from minus 0.40% to minus 0.50%. It also restarted its open-ended quantitative easing program of buying at €20 billion worth of government bonds every month, for as long as necessary.
Stocks surged at the open on expectations that the Federal Reserve could soon follow suit of reducing its benchmark interest rates, especially amid the growing criticism by President Trump. Optimism around constructive trade talks between U.S. – China further lifted sentiment. As a gesture of goodwill ahead of the planned talks, President Trump expressed his willingness to postpone the recently announced additional Chinese tariffs by 2 weeks. The broader index, however, pared gains alongside conflicting messages out of the White House.
Treasury yields continued to climb higher, with the 10-year Treasury yield settling around its 6-week high at 1.789%. Nine out of the eleven primary sectors traded higher in today’s volatile session. Materials, Technology, Consumer Discretionary, Financials and Communication Services all posted modest gains.
China-exposed semiconductor stocks outperformed on hopes of constructive trade talks next month. Microsoft Corp jumped 1.03%. A sharp 10.99% plunge in DXC Technology Co capped the gains within the broader Technology space. The IT services specialist tumbled on announcing the retirement of its CEO. Oracle Corp accelerated losses within this space, falling 4.26% on missing earnings estimates.
Oil prices slipped after the OPEC talks around further crude production cuts were postponed until December. Conflicting messages out of White House denying reports of any concession of Chinese tariffs ahead of the scheduled trade talks next month further weighed down on oil prices.
Energy stocks were the biggest laggard of today’s session, closing 0.63% lower. Helmerich & Payne Inc. was the worst decliner within this space, down 4.43%. Concho Resources Inc., Marathon Oil Corp., National-Oilwell Varco Inc. and Cimarex Energy Co. were the other major drags, closing lower by more than 3% apiece.