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THE GIST (“THE WHAT”)
Flight towards safety resumed after weaker-than-expected industrial data out of China and Germany reignited fears of global economic meltdown. The closely-watched spread between the 2-year and 10-year Treasury yield briefly inverted, flashing signs of credit crunch and an impending recession in the U.S.
Panicked investors rotated out of riskier equities and into traditional safe-haven assets, sparking a dramatic sell-off across all sectors within the S&P 500 index and sending the index tumbling by a whopping 85.72 points to 2840.60, losing 2.93% over previous session’s close. Oil prices fueled the losses, plunging more than 3% amid mounting concerns of a supply glut. Financials, Technology and Materials were also sharply lower in today’s ugly sell-off.
THE DETAILS (The “How & Why”):
Weaker-than-expected economic data out of China and Germany revived recession jitters, sparking an intense selling across sectors. Panicked investors gave up riskier equities in favor of safety of Government bonds, sending Treasury yields lower across the board and pushing the 30-year Treasury yield to its lowest level on record. The 2-year and 10-year Treasury yield briefly inverted into a negative territory for the first time in 12 years, flashing signs of an impending recession and credit crunch. Inversion of this closely watched spread has historically preceded recession.
Banks and financial stocks were brutally sold-off by 3.56%, falling into corrective territory with each component within the sector lower on concerns that negative yields will hurt profitability of lenders. Citigroup Inc. and Bank of America Corp. shed 5.28% and 4.69%, respectively. Goldman Sachs Group Inc., JPMorgan Chase & Co and Wells Fargo & Co all fell more than 4% apiece.
Oil prices declined more than 3% following reports of a second-consecutive weekly jump in U.S. crude inventories by 1.6 million barrels. Energy stocks were the biggest drag on the index, closing 4.12% lower. All of the components within this space were brutally sold-off. Cimarex Energy Co, Apache Corp. and National Oilwell Varco Inc. were the worst decliners, down 9.55%, 8.39% and 8.05%, respectively. Baker Hughes, Devon Energy Corp and Schlumberger Ltd, all tumbled more than 6% apiece in today’s ugly selling.
Materials, Consumer Discretionary, Technology and Communication Services sectors also took it on their chin, plunging more than 3% each. Losses within the retail and departmental chain stocks were further aggravated after Macy’s Inc. fell 13.22% to its lowest level in over a decade after the retail giant disappointed investors by slashing its forecast outlook for the fiscal year. Kohl’s Corp and Nordstrom Inc. were the worst decliners of the session, nose-diving 10.97% and 10.65%, respectively.
Industrials and Health Care also posted sharp losses, each sector posting more than 2% of losses. Utilities fared relatively better alongside sliding yields. Only 3 companies within the broader index managed to buck the trend and close in green. Newmont Goldcorp Corp. rose 0.82% with gold prices edging higher amid today’s flight for safety.