Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Wednesday, 05/29” will be posted around 8:30am EDT, Wednesday.
THE GIST (“THE WHAT”)
Growing trade uncertainty and its impact on stock markets dampened investor sentiment after President Trump said over the weekend that he is not yet ready for a trade deal with China and China hinted that it will not bow down to U.S. demands to change its state-run economy.
Increasing demand for Government bonds sent the 10-year Treasury yields to September 2017 lows, flattening the yield curve and reviving recession jitters. Recovery in chipmaker stocks lifted the S&P 500 index higher at the open. Gains, however, lost steam and reversed trend alongside sliding yields. Led by Consumer Staples and Utilities, the index closed near session lows at 2802.39, down 23.67 points and losing 0.84% over previous session’s close.
THE DETAILS (The “How & Why”):
Investors mostly shrugged off a stronger-than-expected Consumer Confidence data that came in at an 18 year high. Treasury yields fell across the board amid growing rhetoric and rising trade uncertainties. The 10-year Treasury yield settled at its lowest level since September 2017 at 2.268%. The yield curve between 3-month Treasuries and 10-year Treasuries once again inverted, reviving recession jitters and hurting banking stocks. Goldman Sachs Group Inc., JP Morgan & Chase Co., Morgan Stanley and Wells Fargo & Co. all fell more than 1% each.
Semiconductor stocks attempted to recover after last week’s brutal sell-off, leading the index higher at the open. Advanced Micro Devices Inc. soared 9.80% to be the top gainer of the session after the chipmaker announced a new line of computers and gaming chips, sending its rival Intel Corp lower by 2.24%. The broader sector, however, erased early session gains and closed 0.33% lower. Western Digital Corp. and Micron Technology Inc. fell more than 3% each.
Interestingly, bond proxies and dividend-paying sectors were the biggest drag on the index despite falling yields in the background, suggesting growing risk-aversion. Utilities, Consumer Staples, Health Care and Real Estate were the worst performers, down sharply by 1.61%, 1.79%, 1.41% and 1.10%, respectively. Kraft Heinz Co., Perrigo Co. PLC and Mylan N.V. were the worst performers of the session, falling 6.59%, 5.70% and 5.69%, respectively.
Bucking the trend, Communication Services was the only sector to close slightly higher by 0.17% led by 2.86% jump in Activision Blizzard Inc. after Goldman Sachs upgraded the videogame software publisher, citing potential in earnings growth from recent releases. Other gaming stocks, Take-Two Interactive Software Inc. and Electronic Arts Inc. also rose 1.45% and 1.29% following bullish comments by Goldman Sachs. Meanwhile, Facebook Inc. led the gains within FANG components, closing higher by 1.79%.