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THE GIST (“THE WHAT”)
Trade woes continue to weigh down on investor sentiment and fuel demand for safe haven traditional assets. U.S. manufacturing activity fell for the first time in 3 years, stoking fears of economic slowdown and sending the S&P 500 index sharply lower during the early trading hours.
China-dependent Technology and Industrials stocks were sold-off across the board to lead the broader index lower. Strength in defense-play stocks helped offset some of these sharp declines. Paring losses during the late-afternoon session, the choppy session closed off of session lows at 2906.27, down 20.19 points and losing 0.69% over previous session’s close.
THE DETAILS (The “How & Why”):
With new tariffs on Chinese imports going into effect over the weekend, China lodged a complaint in WTO against the latest round of tariffs which violated the consensus reached by both the disputing parties. Amid simmering trade tensions, investors will be closely reading into the key economic data this week looking for confirming signs of a slowing economy.
Industrials sector led the declines, closing lower by 1.42%. Boeing Co tumbled 2.66% following reports of setbacks in its flagship Max 737 fleet’s return to service in time for the holiday season. Trade sensitive Caterpillar Inc., Cummins Inc., Deere & Co. all shed more than 2% apiece, aggravating losses within this space.
Technology sector added to major declines, closing 1.26% lower, with China-exposed big-tech and semiconductor stocks plunging the most. Global chip sales data released by the Semiconductor Industry Association indicated a seventh straight monthly decline, further fueling losses among chip stocks. IPG Photonics Corp. was the worst decliner within this space, down 5.23%. Apple Inc. extended losses by 1.46%. Analog Devices Inc., Broadcom Inc. and Qualcomm Inc. all closed lower by more than 3% apiece.
The ISM manufacturing data came in at 49.1 compared to the expected reading of 51.1, suggesting a contraction in economic activity for the first time in 3 years. Treasury yields extended their descent across the curve. The 10-year Treasury yield hit its lowest level since July 2016, settling at 1.469%. Communication Services and Financials sectors shed more than 1% each.
Bucking the trend, however, Amazon Inc. gained 0.76% on the back of stock upgrade by RBC Capital citing potential of subscription growth following the e-commerce giant’s ‘Prime One-Day Shipping’ initiative.
Materials, Energy and Consumer Discretionary posted modest declines amid trade and economic uncertainty. Casino stocks tumbled on reports of an 8.6% decline in gambling revenue in Chinese territory of Macau for the month of August in the wake of Hong Kong protests and intensifying trade tensions. Wynn Resorts Ltd and MGM Resorts International fell 4.32% and 3.46%, respectively. Weaker-than-expected manufacturing reading also sent oil prices lower, hurting the Energy sector by 0.55%.
Offsetting some of these major weaknesses, defensive and interest-sensitive stocks continued to benefit from falling yields. Utilities, Real Estates and Consumer Staples were the only sectors posting modest gains amid today’s choppy price action, closing 1.75%, 1.31% and 0.51% higher, respectively. Health Care sector, however, was weighed down by a sharp 5.54% fall in Alexion Pharmaceuticals Inc. and a 4.88% fall in Abiomed Inc.