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THE GIST (“THE WHAT”)
Pausing near record highs, the S&P 500 index flirted with the flat line amid a rotation out of defensives and into cyclicals following fresh signs of encouraging developments around the initial part of the trade agreement.
Real Estate and Utilities stocks extended their sharp declines into the second straight session as investors favored Energy and Financial stocks alongside rising Treasury yields and climbing oil prices. Oscillating between gains and losses, the index closed the lackluster session slightly lower at 3074.62, down 3.65 points and losing 0.12% over previous session’s close.
THE DETAILS (The “How & Why”):
Reports that the U.S. and China are considering rolling back some of the recent tariffs boosted risk appetite amidst improving outlook of the U.S. – China trade talks. Investors continued giving up traditional safe haven assets in favor of risky equities. Stronger-than-expected ISM’s service sector activity index for the month of October further dampened the demand for Government bonds.
The 10-year Treasury yields jumped 7.8 basis points to a seven-week high at 1.865%. Oil prices also rose more than 1%, despite the OPEC slashing its outlook for global oil demand growth for 2020.
Beneath the broader lackluster price action, rotation out of defensive stocks and into cyclicals and growth stocks send Real Estate, Utilities and Health Care sectors sharply lower for the second session in a row. On the other hand, Energy stocks led the day’s advances; up modestly by 0.45% as oil prices jumped more than 1% on trade optimism. Financials were the other notable gainers for the session, closing 0.42% higher for the day.
On earnings front, Kroger Co. topped the day’s gains, surging 11.36% after the leading grocer revised its guidance upwards while reassuring investors of its strategy moving forward. International Flavors & Fragrances Inc. and Regeneron Pharmaceuticals Inc. were the other strong gainers on the back of earnings beat.
Under Armour Inc. recouped some of its massive losses, climbing 5.63% after Goldman Sachs maintained its buy rating on the sportswear giant despite disappointing quarterly results. Meanwhile, Mylan N.V. slipped 9.88% after CFRA downgraded the specialty pharmaceuticals company on missing revenue estimates for the third quarter.