Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan” will be posted around 9:00am EDT, every trading day.
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THE GIST (“THE WHAT”)
Chopping within a relatively narrow range, the S&P 500 index closed mostly unchanged as rotation out of defensive and growth stocks and into the beaten-down value stocks capped gains from Energy and Financials for the second straight session. Many eyed this as a sign of position winding by major hedge funds ahead of key interest decision by Federal Reserve and European Central Bank.
Energy stocks led the day’s advances for the second session in a row. China exposed stocks also outperformed amid easing U.S. –China trade jitters. Defensive stocks extended their weakness alongside rising yields. Trading lower for most part of the session, a sharp leg higher during the last few minutes of trading pushed the index to close the choppy session at 2979.39, mostly unchanged for the day.
THE DETAILS (The “How & Why”):
Reports that President Trump fired his National Security Adviser John Bolton send the oil prices lower. Expectations that departure of a strong proponent of the ‘maximum pressure’ campaign undertaken by the Trump administrations against Iran, sparked hopes that lifting of Iranian sanctions could increase supply of global oil.
The Energy Information Administration slashed its forecast for oil prices for 2019 and 2020, further accelerating the slide in oil prices. Energy sector closed sharply higher by 1.29%, leading the day’s advances for second session in a row. Occidental Petroleum Corp and Schlumberger Ltd. were the strongest performers within this space, closing more than 3% higher apiece.
Trade-sensitive Industrials and Material stocks also posted modest gains with the U.S. – China trade tensions on the backburner for now. China reportedly sweetened its deal and offered to buy an unspecified amount of U.S. agricultural products in exchange for easing restrictions on Huawei Technologies and delaying the upcoming tariffs. Deere & Co. jumped 3.59%. Boeing Co and Caterpillar Inc. rose more than 2% each. Airlines and transportation stocks traded higher across the broad.
Financials also extended their gains as yields continued climbing amid easing trade jitters and diminishing prospects of a no-deal Brexit. The 10-year Treasury yield hit its one-month high, settling at 1.733%. Dividend-paying and defense-play stocks were sold off in favor of cyclical stocks alongside rising yields. Real Estate and Consumer Staples shed 1.37% and 0.61%, respectively. Utilities, however, managed to buck the trend, clawing back some of the previous session’s sharp losses.
Technology stocks remained under pressure amid growing regulatory concerns surrounding big-tech firms. Apple Inc. erased early session gains and closed 1.18% higher on announcing new iPhones, Apple watches and iPad. All the other FAANG components traded lower for the day.