Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan” will be posted around 9:00am EDT, every trading day.
For the Outlook, Forecast, and Trading Plans published this morning, please click here
For the Results of the morning’s Trading Plans, please click here.
THE GIST (“THE WHAT”)
A sharp drop in Consumer Confidence reading, coupled with the cautious comments by Fed Chairman Jerome Powell revived growth concerns, dragging the index lower for the third session in a row. Technology stocks tumbled after Jerome Powell avoided committing to a rate cut in July in his speech Tuesday afternoon. Disappointing earnings by Lennar weighed down heavily on home-builder stocks.
Pulling back from all-time highs, the index closed at session lows at 2917.38, down sharply by 27.97 points and losing 0.95% over previous session’s close. Except Materials, all the other ten out of the eleven primary sectors traded lower with Technology, Communication Services and Real Estate posting worst declines.
THE DETAILS (The “How & Why”):
While reiterating the Fed’s plan to act appropriately to sustain the economic expansion, Jerome Powell avoided committing to a rate cut in July, fading the prospects of a much expected rate cut. He also highlighted the increasing risks of ongoing trade and geopolitical uncertainties on the global synchronized growth story.
Meanwhile, weaker-than-expected economic data dragged Treasury yields lower. The 10-year Treasury yield fell to its lowest level since 2017, settling below the psychologically important 2% level at 1.99%. The Conference Board’s Consumer Confidence reading for the month of June slipped to its lowest level since September 2017 amid intensifying trade tensions.
Technology sector was the biggest drag on the index, closing broadly lower by 1.84%. Chip stocks fell across the board amid concerns of falling global demand. Microsoft led the declines within this space, falling 3.16% after Jefferies downgraded its stock, citing elevated valuation of its cloud-computing business. Xilinc Inc., Skyworks Solution Inc., Seagate Technology and Salesforce.com Inc. all fell more than 2% apiece.
All of the FANG components traded lower, weighing down heavily on Communication Services sector and dragging it lower by 1.60%. Real Estate and Consumer Discretionary were the other major decliners of the session, all down sharply by 1.35% and 1.07%, respectively.
Lennar Corp. tumbled 6.21% despite reporting better-than-expected second- quarter results, after the homebuilder giant gave a dismal EPS guidance citing rising material costs due to tariffs on Chinese imports. Other homebuilder stocks DR Horton Inc. and Pulte Group Inc. fell in tandem by 3.86% and 2.40%, respectively.
On the economic data front, new home sales fell 7.8% in the month of May and the rate of price increase of new homes slowed for 13th month in a row, further fueling losses in Real Estate space.
On the positive side, Allergan PLC was the top gainer of the session, surging 25.36% after the Botox maker announced its takeover by pharmaceutical giant AbbVie Inc. for $63 billion, a 45% premium over Allergen’s market valuation. AbbVie Inc., however, tumbled 16.25% in its worst day on concerns of over-valuation and investor skepticism that the acquisition will help the drug maker to overcome falling sales of its blockbuster psoriasis and arthritis treatment drug Humira.