Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Friday, 10/12” will be posted around 8:30am EDT, Friday.
THE GIST (“THE WHAT”)
Plunging for the sixth straight session in a row as investors continue to abandon equities in favor of save haven assets amid fears of rising interest rates, the S&P 500 index shed a sharp 6.64% in this 6-day losing streak. Rising interest rates increases borrowing costs for businesses, thereby eating into their profits. In a major technical damage, the index was unable to hold on to its key technical support level of 200 DMA (now at 2765.75) for the first time since March 05, 2018. CBOE VIX, the volatility index spiked to 28.84, its highest level since February.
The index attempted to gain ground at the open, entering into a positive territory for a brief moment following CPI data for the month of September that came in below expectations, easing fears of a runaway inflation. Stabilizing yields and reports that President Trump and Chinese leader Xi Jinping plan to meet next month at the G-20 summit provided little respite in today’s heavy selling that was aggravated in the last hour of the session. The index closed near session lows at 2728.37, down a sharp 57.31 points and losing 2.06% over previous session’s close. Led by Energy sector, all of the 11 primary sectors closed the session lower.
THE DETAILS (The “How & Why”):
Energy sector was the biggest drag on the index, down 3.09% as oil prices extended their slide, falling sharply following reports of a larger-than-expected build-up in U.S. crude inventories. Concerns of deteriorating health of the global economy further weighed down on oil prices. Marathon Oil Corporation and Newfield Exploration Company were the worst performers within the sector, down 5.67% and 5.41% respectively.
Treasury yields pulled back slightly from their seven-year highs, after a tamed CPI data eased fears of a runaway inflation. The 10-year Treasury yield settled at 3.151%. Financials stocks shed 2.93% ahead of earnings release by big banks tomorrow. Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. kick start the quarterly earnings season tomorrow. While rising yields are typically considered beneficial for the broader sector, investors worry that declining growth in loans and rising deposit costs could offset the benefit from high interest rates.
Technology stocks extended loses, down 1.27%, however, faring better compared to their yesterday’s carnage in which all the components were heavily sold-off. Facebook Inc., CA Inc. and Advanced Micro Devices Inc. gained some of their lost ground, up 1.30%, 1.49% and 1.20% respectively. Defensive stocks faced steep losses in today’s broad-based rally, after performing better in previous session’s carnage.
Real Estate, Health Care, Consumer Staples and Utilities shed 2.91%, 2.67%, 2.32% and 1.97% respectively. Trade sensitive Industrials, Materials and Communication Services sectors extended loses by 2.28%, 1.20% and 0.84%. Fluor Corp. was the biggest drag within the Industrials space and the worst decliners in today’s session, plunging 17.24% after reporting weak third-quarter revenue forecast.