Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Friday, 12/7” will be posted around 8:30am EDT, Friday.

THE GIST (“THE WHAT”)

The S&P 500 index resumed its intense selling, after news of the arrest of Meng Wanzhou, CFO of a Chinese telecom giant Huawei in Canada, at the behest of the U.S., stroked fears that tensions between the U.S. and China could escalate into a fully-blown trade war. Flattening yield curve and plunging oil prices further exacerbated the day’s deep losses. The CBOE VIX, Wall Street’s fear gauge hit its February high at 25.73 amid a global investor panic.   
Mirroring a sharp decline in the futures market, the index opened lower and fell sharply with all of the eleven primary sectors getting sold-off on trade jitters and fears of a recession. Falling bearishly below the 200 DMA (now at 2762.06), the index rebounded on registering the day’s low at 2621.53 following dovish signals from the Federal Reserve to close the roller-coaster session off of session lows at 2695.95, down only 4.11 points and losing a slight 0.15% over previous session’s close. 
Seven out of the eleven primary sectors closed the volatile session lower, with Real Estate sector offsetting sharp declines in Energy and Financials sectors. Technically speaking, today’s dramatic sell-off left the index on the verge of forming a death cross, with the 50 DMA only under 2 points away from crossing the 200 DMA from above, an indication of near-term bearishness.

THE DETAILS (The “How & Why”):

Oil prices tumbled after the OPEC nations struggled to agree on a production cut, concluding the first day of their closely-watched two-day meeting, slated to wrap-up tomorrow, leaving the production level unchanged. Market had been anticipating a significant production cut to curtail the global supply glut.
Reports that Saudi Arabia has proposed a smaller-than-expected output cut further fueled the plunge in oil prices. Energy sector was the worst performer of the session, down 1.77%. TechnipFMC PLC, Cimarex Energy Co and Concho Resources Inc. were among the worst decliners of the session, down 7.74%, 6.82% and 5.91% respectively.
Investors’ flight to the safe haven assets like bonds continued amid a global equity sell-off, pushing yields lower and hurting Banking and Financial stocks. The 10-year Treasury yield settled at 2.872%, further narrowing the spread between the 2-year and 10-year Treasury bond yields and edging closer to an inversion, a precursor to the economic recession. The sector, however, parred some of the losses on reports that the Federal Reserve might consider to pause its current pace of rate hikes.
The broader Financials sector closed the session lower, shedding another 1.44%, led by a sharp 8.85% decline in SVB Financial Group following stock downgrades by several analysts. Investors will be keenly looking forward to the highly anticipated employment report on Friday, expecting the unemployment rate to hold at 3.7%.  
Trade-sensitive Materials and Industrials sectors were the other notable decliners, down 1.36% and 0.55% respectively alongside the escalating trade jitters. Defensive sectors also traded lower for the day amid broad-based selling, albeit faring relatively better. Health Care, Consumer Staples and Utilities, closed the session lower by 0.31%, 0.10% and 0.10%.
Offsetting the day’s sharp declines were gains in Real Estate stocks that benefitted from falling interest rates. The sector ros
e broadly higher by 2.66%, led by a solid 5.31% rise in Kimco Realty Corp. Communication Services, Consumer Discretionary and Technology sectors also supported day’s gains, up 1.04%, 0.61% and 0.23%. Except Apple Inc., which shed another 1.11%, all other big-tech FAANG stocks stood resilient in the face of heavy selling. Facebook Inc., Amazon.com Inc., Alphabet Inc., and Netflix Inc. were all higher for the day, up 1.23%, 1.85%, 1.47% and 2.74% respectively.