Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Thursday, 05/30” will be posted around 8:30am EDT, Thursday.
THE GIST (“THE WHAT”)
Fears of an imminent recession were further stroked after the closely watched yield curve inverted deeper into negative territory, sparking a panic selling in equities across sectors. While retail stocks were the worst performers of the session following a new batch of disappointing earnings, bond proxies and dividend-paying sectors were the worst sold-off despite falling yields, signaling a real risk aversion among investors.
Gapping below the 2800 level at the open, the index fell sharply alongside special counsel Robert Muller’s first public statement on his investigation into Russian interference in the 2016 elections, wherein he quoted that he did not have an option of charging a sitting president with a crime.
Falling below the key technical level of 200 DMA (now at 2776.07) for the first time since March 11, 2019 and registering the day’s low at 2766.06, the index pared losses in the afternoon session on to close off of session lows at 2783.02, down 19.37 points and losing 0.69% over previous session’s close.
THE DETAILS (The “How & Why”):
Treasury yields extended their slide alongside rising demand for safe haven bond assets amid intensifying trade tensions that show no sign of calming down. The closely watched yield curve between the 10-year Treasury note (2.26%) and 3-month Treasury bill (2.362%) inverted deeper into negative territory to its lowest since 2007, flashing signs of an imminent recession.
Utilities and Real Estate led the index lower for second session in a row, closing sharply lower by 1.34% and 1.16%, respectively. Selling of defensive play sectors in the wake of falling yields hints at a growing risk-aversion among nervous investors. Except Edison International, all the other components within these sectors were lower for the day.
Retail stocks were the worst decliners of the session. Capri Holdings Ltd. was the biggest percentage decliner of the session, tumbling 9.85% after the luxury fashion house posted a dismal guidance. L Brands Inc., PVH Corp, General Mills Inc. and Newell Brands Inc. were among the worst decliners of the session.
Communication Services, Health Care and Consumer Discretionary were the other notable decliners in today’s panic selling, down 1.11%, 0.95% and 0.88%. Oil prices fell further into bear market territory as concerns of slowing global economy overshadowed worries of soaring U.S. crude stockpiles, hurting energy stocks.
While trade-sensitive Technology, Industrials and Materials extended their slide, they fared relatively better in today’s panic selling, closing slightly lower by 0.60%, 0.45% and 0.06%, respectively. Intel Corp., Microchip Technology, Micron Technology Inc. all gained more than 1% each.