After The Close - The U.S. equity markets started off the final day of the week on the upside, giving some hope that the recent carnage on Wall Street may finally be over. However, by late morning, stocks had tumbled back into the red.
While there has been no shortage of finger-pointing as to the cause behind what is now officially a market correction--be it the specter of higher fed fund rates, rising bond yields, or just equities that were priced to perfection—there’s one thing for certain; investors are rattled. Notably, the CBOE Volatility Index, commonly referred to as the VIX, more than doubled on Monday, something which it had never done before. The VIX is a measure of implied volatility, as indicated by the S&P 500 stock index prices. For most of 2017 and into this year, the so-called fear index had stayed comfortably below the 15 mark. On Tuesday morning, it shot up to 46, and was back up to as high as 40 early this afternoon.
But stock traders aren’t the only ones feeling unnerved. Crude oil prices continued to slide today, shedding 3.2% on fears of rising supply, falling below $60 per barrel for the first time this year. On Wednesday, the U.S. Energy Information Administration reported that U.S. output had reached a record 10.25 million barrels a day last week. Moreover, the agency estimated that production would average close to 10.6 million barrels a day this year, rising to 11.2 million in 2019. With today’s drop, light sweet crude prices were down more than 9% for the week.
Although gloom settled back on the markets in early afternoon, bargain hunters appeared to descend in meaningful numbers shortly before 2:00 PM, Eastern Time, rescuing investors from the jaws of another day’s defeat. By the closing bell in New York, all three of the major indexes were firmly in positive territory. By the numbers, the Dow Jones Industrials were up 330 points, while the broader S&P 500 Index was ahead by 39, and the tech-heavy NASDAQ had advanced 97 points. The sector breakdown was dominated by advancers. Technology and utility shares were in front among the winners, gaining 1.6% and 1.2%, respectively. On the other side of the ledger, energy shares came up short with a loss of nearly one percent. Although impressive, the late rally was not nearly enough to erase the week’s losses, with equities down more than 5% over the last five sessions.
Finally, the European bourses had less to cheer about today, spending the entire session in the red. France’s CAC-40 and Germany’s DAX were hit the hardest, falling 1.4% and 1.2%, respectively. Britain’s FTSE fared little better, shedding 1.1%. - Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market, which saw some diminution in aggregate volatility on Wednesday, as the popular averages moved back and forth within a somewhat narrower range before ending the session just slightly lower, began yesterday with volatility back in vogue, as the Dow Jones Industrial Average quickly moved out to a 200-point deficit. As before, a big contributor to the shortfall was another increase in interest rates. Specifically, the yield on the 10-year Treasury note, which had soared to 2.88% early in the week, before settling back near 2.70%, was back up to that higher level yesterday morning.
And that further climb in rates induced some renewed selling on Wall Street at the start of the trading day. Heretofore, in recent months, strong earnings and supportive economic metrics had been sufficient to get the bullish case out there. Now, though, with borrowing costs on the rise and with the Federal Reserve suggesting that we may need as many as four rate increases this year, the sellers continue to circle the wagons. In fact, data showing that weekly jobless claims had fallen to a 45-year low of 221,000 in the latest week did nothing to lessen the selling.
In the meantime, some technicians had suggested that 2.80% on the 10-year Treasury was probably the area to watch. Now that this level has been surpassed with room to spare, the next apparent target is 3.05%. Any move above that point would clearly end the long downtrend in rates and possibly set up additional selling in the equity market. For now, however, yields already seem to be high enough for the further unloading of stocks. And during the morning yesterday that is just what investors were busy doing, as the Dow's loss remained above 200 points as we completed the first hour of trading.
Meanwhile, earnings continue to come in strongly. Yesterday morning, for example, saw Twitter (TWTR) come in with better results than forecast, and that stock soared in early dealings. But Twitter clearly was an outlier, as the first part of the day saw many more stocks fall than rise on the Big Board (by more than a two-to-one ratio), while just energy among the 10 leading sectors was higher. Also of note, stocks hitting new 52-week lows were four times as numerous as those securing 12-month highs. All the while, the key averages were continuing to fall, with the Dow's deficit ballooning to more than 300 points after 90 minutes of trading.
We then moved still lower into and through the lunch hour in New York, with that 30-stock composite falling to a loss of some 680 points early in the afternoon. From there, the bulls sought to make a stand, and by mid-afternoon, they had about halved the Dow's deficit. Further, the NASDAQ, once off by about 190 points, attempted a partial comeback. However, as with other recent buying spells, this one would prove all too brief, and as we moved inside the final 90 minutes a renewed round of selling got under way, with the averages heading back toward and then through session lows. In all, the large-cap indexes were the biggest losers.
Things then deteriorated further into the close, with the major composites heading toward session lows in a selling spree that concluded with the Dow off by 1,033 points (or 4.15%), the S&P 500 down 101 points (or 3.75%), and the NASDAQ lower by 275 points (or 3.90%). There simply was no place for the forlorn bulls to hide. In all, the Dow Industrials are back in correction territory, with a peak-to-trough decline of 10.4%. The S&P 500 is likewise there, with a 10.2% from its all-time high, while the NASDAQ is knocking on the door, off by 9.7%.
And there still is one day to go this week. On point, yields on the 10-year Treasury close at 2.85%, up just slightly, but that stability may reflect a flight to safety, as much as anything. The concerns about higher inflation and a more aggressive Federal Reserve clearly linger. Meantime, a new session is under way, and stocks in Asia were off sharply in overnight dealings, while in Europe, the bourses are also following U.S. stocks lower, but less sharply. Treasury yields, meanwhile, are still at 2.85% on the 10-year note, and U.S. equity futures are trading higher at this hour suggesting a stronger opening this morning. - Harvey S. Katz, CFA