U.S. stock markets ended sharply lower on Wednesday erasing early hour gains as renewed uncertainty related to trade policies along with a decline in durable goods order in May rattled investor’s confidence. All three major indexes closed in negative territory as well as their lowest levels in almost a month. The broad-based market decline was led by a stiff fall in technology and financial sectors, which overshadowed strong rally of energy stocks.
The Dow Jones Industrial Average (DJI) closed at 24,117.59, declining 0.7% or 165.52 points. The S&P 500 Index (INX) also decreased 0.9% to close at 2,699.63. The Nasdaq Composite Index (IXIC) closed at 7,445.09, shedding 1.5% or 116.54 points. A total of 7.72 billion shares were traded on Wednesday, higher than the last 20-session average of 7.33 billion shares. Decliners outnumbered advancers on the NYSE by 2.58-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 4.11-to-1 ratio. The CBOE VIX increased 2% to close at 12.50.
How Did the Benchmarks Perform?
The Dow lost 0.7% while closing at its lowest level since May 3. The blue-chip index ended 165.52 points lower after touching an intraday high of 285.91 points. This reflects the index’s largest intraday downslide since Feb 21. Moreover, the Dow ended below its 200-day moving average - a technical barrier to gauge the index’s long-term momentum trends - for the third straight session. Notably, 26 of the 30-stocks index closed in the red while 4 traded in the green.
The S&P 500 dropped 0.9% and closed at its lowest level since May 29. Moreover, the benchmark index closed below its 50-day moving average for the first time since May 8. Notably, 50-day moving average is a psychological barrier to gauge the index’s short-term momentum trends.
The S&P 500’s decline was primarily led by 1.4% loss of the Technology Select Sector SPDR (XLK) and 1.3% decrease of both Consumer Discretionary Select Sector SPDR (XLY) and Financials Select Sector SPDR (XLF). Some of S&P 500’s decline was curtailed by a 1.3% gain of Energy Select Sector SPDR (XLE). Notably, nine out of 11 sectors of the index ended in negative territory.
The tech-laden Nasdaq Composite shed 1.5%, finishing at its lowest level since May 31. Lingering trade tensions took a toll on large-cap tech stocks pushing the index in the red.
Trade Conflicts Looms Large
Ongoing trade related conflicts between the United States and its major trading allies like China, European Union, Canada, Mexico, to name a few continue shake up investor’s sentiments. Mixed signals to trade policies provided by the White House further worsening the situation.
Yesterday, markets opened on a positive note as President Trump stated that he has decided to strengthen the Committee on Foreign Investment in the United States (CFIUS), who will assess potential threat from Chinses investment in U.S. companies. This was a softer stand compared with Trump’s earlier decision to impose China specific investment restrictions.
Later in the day, Treasury Secretary Steven Mnuchin stated the government can block any American joint venture in China if the firm transfers critical technologies to China. Moreover, White House economic advisor Larry Kudlow said the Trump administration’s revised approach related to Chinese investment in the United States should not be considered as a soft stand on China. Following these two developments, stock markets took sharp downturn.
Technology and Financial Sectors: Major Losers
Tech stocks plunged yesterday due to heightening trade conflicts between the United States and China. 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.
Retaliatory measures taken by China against U.S. restrictions will significantly affect the business model of these large tech companies. Consequently, share price of tech behemoths like Netflix Inc. (NFLX - Free Report) and Amazon.com Inc. (AMZN - Free Report) fell 2.3% and 1.8%, respectively.
Yields on U.S. government bonds slips Wednesday on the back of ongoing trade conflicts which investors fear may result into a full blown trade war jeopardizing the global economic growth. Moreover, a decline of U.S. durable goods order in May weighed on business sentiment. The yield on benchmark 10-year U.S. Treasury Note lowered to 2.829, which stayed above 3% level earlier this month. As a result, major banks like JPMorgan Chase & Co. (JPM - Free Report) and Morgan Stanley (MS - Free Report) suffered 1.5% and 1.3%, respectively.
Energy Sector Rally on Oil Price Surge
On Jun 27, crude prices surged on the back of renewed fear of a global oil shortage in the second half of 2018. West Texas Intermediate (WTI) crude gained $2.23 or 3.2% at $72.76 a barrel on the New York Mercantile Exchange. This was WTI’s highest close since Nov 26, 2014. Brent crude rose $1.31 or 1.7% at $77.62 a barrel on ICE Futures Europe. This was its highest finish since May.
Yesterday, the U.S. Energy Information Administration (EIA) reported that that U.S. crude supply declined by 9.9 million barrels for the week ended Jun 22. This was the largest weekly decline of U.S. crude so far this year reported by the EIA. Per the EIA report, gasoline stockpiles rose by 1.2 million barrels for the week, while distillate stockpiles were unchanged.
Consequently, share price of petroleum behemoths like Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) rose 1.3% and 1.5%, respectively. Exxon carries a Zacks Rank #3 (Hold) while Chevron sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Commerce Department reported that new orders for key U.S.-made capital goods and shipments dropped 0.6% in May driven by a drop in new orders for trucks and cars. Consensus estimate was a decline of 1%. April’s reading has been revised to 1% decline. The decline in May durable goods orders was almost broad-based. New orders for core capital goods fell 0.2% in May in contrast to 2.3% gain in April.
The Commerce also reported that the U.S. trade deficit declined 3.7% to $64.8 billion in May. Advanced report on wholesale inventories showed a 0.5% gain in May. Advanced retail inventories rose 0.4%.
The National Association of Realtors reported that U.S. pending home sales declined 0.5% to a reading of 105.9 in May. Consensus estimate was an increase of 0.5%.
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