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THE GIST (“THE WHAT”)
Lacking headlines around trade war and recession, investors turned their attention to Fed’s minutes from its July meeting and Jerome Powell’s speech at the Jackson Hole on Friday. Choppy price action on a relatively low volume ended S&P 500 index’s 3-day winning streak as bond yields resumed their slide after a brief halt.
Falling sharply at the open, the index attempted to rebound after better-than-expected earnings by Home Depot Inc. lifted sentiment. Falling yields, however, weighed down on risk-appetite and the sell-off gained steam mid-session. A sharp leg lower dragged the index to close near session lows at 2900.51, down 23.14 points and losing 0.79% over previous session’s close. All sectors traded lower for the day with Financials leading the day’s declines.
THE DETAILS (The “How & Why”):
Investors will be closely watching the Fed’s release of its July policy meeting tomorrow and Fed Chairman Jerome Powell’s speech at Jackson Hole to gain insights into the central bank’s future course of rate cuts. Demand for safe-haven Government bonds gained traction amid growing political instability in Italy, coupled with uncertainty around Britain exit from EU without a deal.
Treasury yields resumed their slide, weighing down heavily on banking and financial stocks. While the 10-year Treasury yield settled lower at 1.566%, the closely-watched yield curve between the 2-year and 10-year yield steepened further after briefly inverting into a negative territory last week. Financials sector was the biggest drag on the broader index, closing broadly lower by 1.40%.
Materials and Consumer Staples were major decliners, both down more than 1% each. Weakness in Energy, Communication Services and Health Care further weighed down on the index. Oil prices slipped despite a surprise decline in crude oil inventory draw last week.
Among strong individual movers, Kohl’s Corp tumbled 6.89% following mixed quarterly earnings after the department store chain missed same-store sales estimates but signaled at improving performance on the back of upcoming brand launches, program expansions, and increased traffic from Amazon returns program. Macy’s Inc., Conagra Brands Inc. and McCormick & Co. Inc. were the other major decliners of the volatile session, all shedding more than 4%.
Meanwhile, Consumer Discretionary was the only sector to maintain slight gains throughout the session after Home Depot Inc. boosted homebuilding stocks on beating second-quarter earnings estimates. The home improvement retailer guided lower for the fiscal year, citing deflation in lumber prices and potential impacts from U.S. – China tariffs.
Lowe’s Companies, Pultegroup, Lennar Corp and D.R. Horton all posted modest gains for the session. The broader sector, however, erased gains during the last hour of session and closed slightly lower amid a broad-based selling.