Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Friday, 10/05” will be posted around 8:30am EDT, Friday.
THE GIST (“THE WHAT”)
In a typical risk-off move, investors shunned equities and piled up on Treasury bonds, sparking a rally in yields. The 10-year Treasury yield spiked to a 2011 high, resulting in a dramatic sell-off and causing a major technical damage to the S&P 500 index as it fell to a 3-week low. While Technology was the weakest sector of the session, a pullback in oil prices also weighed down on the Energy sector.
Unable to hold on to the 20 DMA (now at 2907.01), the index found support at the psychologically important 2900 level. Utilities and Financials were the only sectors supporting modest gains as the index was broadly sold-off to close the session off of session lows at 2901.61, down sharply by 23.90 points and losing 0.82% over previous session’s close.
THE DETAILS (The “How & Why”):
Treasury yields were the theme of the day, hurting defensive stocks that were broadly shunned in favor of Treasury bonds after Initial Jobless Claims data came in at a 49-year low at 207,000. Dividend-paying Health Care, Real Estate and Consumer Staples fell 0.94%, 0.62% and 0.22% respectively.
Yields extended their previous session’s climb following a strong private-sector employment data and a hawkish remark from Federal Reserve Chairman Jerome Powell. Investors will be closely watching the Jobs report due tomorrow, expecting addition of 185,000 Non-Farm Jobs to the economy.
Technology and Communications sectors were the worst performers of the session, down sharply by 1.78% and 1.48% respectively. Semiconductors fell across the board after Deutsche Bank downgraded eight chip stocks. Akamai Technologies Inc. and Microchip Technologies Inc. were among the worst decliners of the session, down 4.97% and 4.91%.
News reports that Chinese spies had implanted tiny chips in the hardware that were purchased by Apple Inc. and Amazon.com Inc., further hurt confidence, sending their stocks lower by 1.76% and 2.22% respectively.
Retail and department chain stocks extended their last 2 sessions’ slide on rising cost concerns, dragging the Consumer Discretionary sector lower by 1.60%. Besides Materials and Industrials sectors that closed the session lower by 0.42% and 0.29%, Energy stocks further added to the day’s losses, falling 0.51% after oil prices pulled back from their recent four-year highs, weighed down by a big increase in the U.S. crude inventories, which were largely ignored in the previous session.
Reports that Russia and Saudi Arabia had entered into a private deal in September to increase their crude output further fueled a decline in oil prices. On the other hand, rising yields helped lift Financials sector higher by 0.71% and limiting the day’s losses. Interestingly, in a change of trend, interest-sensitive Utilities sector also traded broadly higher for the session, up 0.54%, despite yields soaring in the background.