Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Wednesday, 10/24” will be posted around 8:30am EDT, Wednesday.
THE GIST (“THE WHAT”)
Yet another day of disappointing earnings and plunging oil prices drove the S&P 500 index convincingly below its critically important support level of 200 DMA (now at 2768.27) and near July 2018 lows. Concerns that corporate earnings might have reached their peak amid rising costs, a strong dollar and slowing global growth were renewed after trade-sensitive industrial conglomerates Caterpillar Inc. and 3M Co. released disappointing earnings and a tepid outlook; citing rising costs due to the recent tariffs.
Falling sharply at the open for the fifth straight session, the index, however found support in defensive stocks alongside a decline in yields in today’s apparent risk-off mood. Confidence also improved after executives at Caterpillar Inc. stepped up to reassure investors that tariffs will only have a limited impact on results. Bouncing off the day’s low of 2691.43, the index trimmed the early session’s deep losses on a steady climb, closing the session at 2740.69, down 15.19 points and losing 0.55% over previous session’s close.
THE DETAILS (The “How & Why”):
Oil prices fell to a two-month low following reports that Saudi Arabia plans to increase its crude oil production to 11 million b/d from the current 10.7 million b/d. The fall was further fueled after API (American Petroleum Institute) reported a huge build-up in inventories of 9.88 million barrels last week. Energy was the worst performing sector, falling broadly by 2.67%, led by a 4.79% drop in Marathon Oil Corporation.
Industrials were the next big laggard, falling sharply at the open following dismal earnings by Caterpillar Inc. and 3M Co. These industrial bellwethers indicated rising manufacturing costs on the back of higher steel prices and import tariffs, renewing fears that the trade friction between the U.S. and China has started to cut into profit margins of trade-sensitive corporations.
Losses within the sector were pared after executive at Caterpillar Inc. stepped up to ease investors’ concerns, announcing that the recent tariffs will have only a limited impact on profitability. The sector, however, closed the session with modest 1.60% loss led by a sharp 7.56% decline in Caterpillar Inc. Paccar Inc. added to the sector losses, falling 5.12% despite beating sales and earnings estimates.
Fears of a slowing global economy also weighed down on commodities and metal prices, sending Materials stocks lower by 1.15%. Avery Dennison Corp. was the worst decliner within the space on missing third quarter earnings estimates. Technology and Consumer Discretionary sectors also gave up their previous session’s solid gains, down 0.40% and 0.11% respectively.
DISH Network Corp. was the worst performer of the session, tumbling 8.34% on stock downgrade amid rising competition within the video streaming business. Limiting losses within the Technology space, Cadence Design Systems Inc. rallied 15.37% on topping sales and earnings estimates.
Sharp sell-off in equities sparked a demand for safe-haven bonds, sending Treasury yields lower. Financials sector shed 0.83% alongside a slide in yields. Amid these sharp declines, were modest gains in defensive Real Estate, Communication Services and Consumer Staples sectors, all up 0.69%, 0.40% and 0.41%, respectively; benefiting from declining yields.