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Stock Market News For May 30, 2018

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U.S. stock markets closed significantly lower on Tuesday as a result of political turmoil in two major Eurozone countries, Italy and Spain. All three major indexes entered into negative territory as soon the markets opened after Memorial Day weekend and failed to recover at the closing bell. Banking stocks bore the brunt of the impact. Moreover, the ongoing trade conflict between the United States and China is displaying no signs of ebbing, fanning investors’ apprehensions of a full-blown trade war. 

The Dow Jones Industrial Average (DJI) closed at 24,361.45, decreasing 1.6% or 391.64 points. The S&P 500 Index (INX) also fell 1.2% to close at 2,689.86. Likewise, the Nasdaq Composite Index (IXIC) closed at 7,396.59, declining 0.5%. A total of 7.58 billion shares were traded on Tuesday, higher than the last 20-session average of 6.58 billion shares. Decliners outnumbered advancers on the NYSE by 1.49 -to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 1.63 to -1 ratio.  The CBOE VIX surged 28.7% to close at 17.02. During trading on Tuesday, Wall Street’s fear gauge once touched 18.68, its highest in two months.

How Did the Benchmarks Perform?

The Dow lost 1.6% marking its third straight negative session. Notably, 27 of the 30-stocks in the blue-chip index closed in the red while two traded in the green. The Dow suffered its worst day on a percentage basis since Apr 24. A loss of 391.64 points once again placed the blue-chip index in negative territory year to date.

The S&P 500 decreased 1.2%, marking its third straight negative session, owing to 3.3% drop of the Financials Select Sector SPDR (XLF), 1.8% decline in Materials Select Sector SPDR (XLB) and 1.6% decrease in Industrials Select Sector SPDR (XLI). Notably, nine out of 11 sectors of the benchmark index ended in negative territory. Like the Dow, S&P 500 also suffered its worst day on a percentage basis since Apr 24.

Similarly, the Nasdaq Composite lost 0.5% due to abroad-based market decline.

Political Turmoil in Eurozone

Political crisis in Italy has created ripples across the global equity markets. The crisis arose after President Sergio Mattarella vetoed the appointment of economy minister Paolo Savona a known critic of the European Union and European integration.

Notably, Savona was recommended by a coalition of the populist 5 Star Movement and the League. Party leaders from 5 Star demanded Mattarella’s impeachment, per the Wall Street Journal. Collapse of a populist coalition raised concerns of an early election in the country, while short-term borrowing costs soared for the government in Rome.

Meanwhile, markets were also rattled by the political turmoil in Spain. In an effort to oust Prime Minister Mariano Rajoy, Spain’s major opposition party has called for a parliamentary vote. This demand can be attributed to a court ruling which stated that the ruling party benefited from an illegal kickback when the country was undergoing a property boom.

The political crisis in Europe and the apparent threat to the Euro project triggered a panic alarm. Investors rush to traditional safe havens like U.S. debt, dragging down U.S. 10-year bond yields to 2.77 from its highest of 3.1 recently. As a result, U.S. banks suffered. Furthermore, the Euro fell below $1.16 per dollar, its lowest this year. Consequently, the Dollar Index, which pits the greenback against a basket of currencies, was up 0.68% Tuesday at 94.83.

Major banks like Morgan Stanley (MS - Free Report) , JPMorgan Chess & Co. (JPM - Free Report) , Citigroup Inc. (C - Free Report) , Bank of America Corp. (BAC - Free Report) and The Goldman Sachs Group Inc. (GS - Free Report)  lost 5.8%, 4.3%, 4%, 4% and 3.4%, respectively. The corporate and investment bank chief of JPMorgan indicated that the bank's second-quarter markets revenue would be flat compared with a year earlier. Moreover, the co-head of Morgan Stanley's wealth management division hinted slower activity since March.

Except for Morgan Stanley, all four stocks carry a Zacks Rank #3 (Hold). Morgan Stanley carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Trade Conflicts Linger

On Tuesday, the Trump administration stated that it will continue to take action on trade with China despite the fact that the two countries are engaged in high-level talks to defuse trade tensions. The United States will also continue to pursue litigation against China at the World Trade Organization. In a recent press release, the White House stated that the U.S. government is likely to release a list of $50 billion worth of Chinese goods that will be subject to a 25% tariff.

Economic Data

On May 29, the Conference Board reported U.S. consumer confidence data for the month of May. The consumer confidence index for May is pegged at 128.0 compared with April’s revised reading of 125.6. May’s reading was also slightly better than the consensus estimate of 127.8. The Present Situation index, reflecting current conditions, reached at a 17-year high of 161.7 from 157.5 in the prior month. The Expectations index also increased to 105.6 from 104.3 in April.

Stocks That Made Headlines

Gap Q1 Earnings Miss Hits Stock, Revenues Top Estimates

Shares of The Gap Inc. (GPS - Free Report) declined in after-hours trading yesterday, following lower-than-expected earnings in first-quarter fiscal 2018. (Read More)

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