Wall Street ended Monday on a disappointing note as all three major stock market indexes declined significantly. Investors’ apprehensions about a trade war between the United States and China as well as with European Union have shaken market confidence. President Trump’s protectionist policies against key trading allies of the United States have generated severe market volatility. Although, yesterday’s decline was broad-based, the technology sector suffered maximum brunt of it.
The Dow Jones Industrial Average (DJI) closed at 24,252.80, declining 1.3% or 328.09 points. The S&P 500 Index (INX) also decreased 1.4% to close at 2,717.07. The Nasdaq Composite Index (IXIC) closed at 7,532.01, losing 2.1% or 160.81 points. A total of 7.74 billion shares were traded on Monday, higher than the last 20-session average of 7.32 billion shares. Decliners outnumbered advancers on the NYSE by 3.29-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 3.24-to-1 ratio. The CBOE VIX increased 25.9% to close at 17.33, its highest level in nearly a month.
How Did the Benchmarks Perform?
The Dow shed 1.3%, its biggest one-day drop since May 29. The blue-chip index closed at its lowest level since May 4. Moreover, the Dow ended below its 200-day moving average, a psychological barrier to gauge its long-term momentum trends. This happened for the first time since June 2016. Notably, 26 of the 30-stocks index closed in the red while 4 traded in the green.
The S&P 500 dropped 1.4%, its biggest daily decline since April 6. This was also the index’s lowest close since May 31. During yesterday’s trading, the benchmark index fell below its 50-day moving average. However, it recovered from there and finally closed above the technical barrier.
The S&P 500’s decline was primarily led by 2.2% loss of the Consumer Discretionary Select Sector SPDR (XLY), 2.1% decrease of both Communication Services Select Sector SPDR (XLC) and Technology Select Sector SPDR (XLK) and 2% decline of Energy Select Sector SPDR (XLE). Notably, nine out of 11 sectors of the benchmark index ended in negative territory.
Nasdaq Composite decreased 2.1%, reflecting the index’s second straight losing session and its biggest one-day percentage loss since Apr 6. Large-cap tech behemoths and semiconductor stocks suffered significantly which pushed the tech-heavy index in the negative territory.
Global Trade War Fears Intensify
Ongoing trade related conflicts between the United States and its major trading allies like China, European Union, Canada, Mexico, to name a few are worsening day by day. Trade conflict between the United States and China has heightened to a position that imposition of tariffs and retaliatory traffic may go up to $450 billion on either side. In addition, President Trump desire to restrict Chinese companies to invest in U.S. tech firms block technology export to China by any U.S. companies will further escalate the tensions.
Moreover, Trump has indicated that United States may impose 20% tariffs on auto imports from the European Union (EU) as a retaliatory move of EU’s decision to impose tariffs on U.S. auto exports.
Yesterday, stock price of motorcycle giant Harley-Davidson Inc. (HOG - Free Report) declined 5.8% after the announcement that the EU tariff on its motorcycles has been raised to 31% from 6%. The company plans to shift production of EU-bound motorcycles to international facilities from U.S. facilities to avoid the tariff burden. Harley-Davidson carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Technology Sector Plunges on Trade Concerns
On Jun 24, The Wall Street Journal reported that president Trump is planning to impose more restrictions on Chinese companies. Per the report, any company with 25% or more Chinese ownership will be barred from investing in any U.S. tech companies. Likewise, U.S. tech companies will not be allowed to export technology to China.
On Monday, the technology sector suffered a severe blow as China is the most lucrative market for tech behemoths. U.S. tech giants operating in the fields of smartphone, software and Internet-based services, online video streaming and social networking generates a large chunk of their revenues from China. Moreover, China accounted for over 50% revenues for some of the leading semiconductors developers.
China is sure to take retaliatory measures against U.S. restrictions which will significantly affect the business model of these large tech companies. Consequently, Netflix Inc. (NFLX - Free Report) declined 6.5%, its biggest drop since July 2016. Other FAANG stocks also follow suite. Leading tech stock Stitch Fix Inc. (SFIX - Free Report) plunged 11%. Semiconductor majors like Micron Technology Inc. (MU - Free Report) and NVIDIA Corp. (NVDA - Free Report) shed 6.9% and 4.7%, respectively.
The Commerce Department reported that New-home sales stood at a seasonally adjusted annual rate of 689,000 in May better than the consensus estimate of 666,000. May’s reading was an increase of 6.7% sequentially as well as 14.1% year over year. However, the median sales price in May was $313,000, down 3.3% year over year.
Stocks That Made Headlines
SM Energy Releases Q2 Operational Updates, Raises View
SM Energy Co. (SM - Free Report) released operational updates for the second quarter of 2018 and announced higher-than-expected production guidance. (Read More)
Kinder Morgan to Channelize Permian Yield Via PHP Project
Kinder Morgan, Inc.’s (KMI - Free Report) subsidiary — Kinder Morgan Texas Pipeline LLC— has inked a letter of intent for the development of the planned Permian Highway Pipeline Project with EagleClaw Midstream Ventures, LLC and Apache Corporation (APA - Free Report) . (Read More)
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>