After The Close - Stocks turned sharply lower this morning, and encountered further selling during the midday hours, and into the afternoon. Investors were rattled by some disturbing developments in the bond market, which stoked fears of a possible economic slowdown or even a recession. Specifically, the yield on the government’s 10-year Treasury moved below the yield on the two-year note, creating a situation known as an inverted yield curve. This situation, which occurred last in 2007, is believed to indicate a coming recession. Further, lately some countries across the globe seem to be having economic difficulties, and their central banks have been acting accordingly. At the end of the day, the major averages were near their session lows. Specifically, the Dow Jones Industrial Average was down 800 points; the broader S&P 500 Index was off 86 points; and the NASDAQ was lower by 242 points.  Market breadth showed widespread selling of equities, as losers outnumbered winners by an overwhelming margin on the NYSE. All of the major equity groups lost ground, with sizable losses in the volatile technology and basic materials issues. The high-yielding utility stocks, which tend to be somewhat defensive, managed to display some relative strength. Also, the gold issues held up well, as investors looked for safe havens.

Meanwhile, it was a light day for economic reports. However, import prices rose 0.2% in the month of July, with a similar increase in export prices. Tomorrow should be a busier session, with many items due out. We will get a look at the latest weekly initial jobless claims, the monthly industrial production numbers, and a retail sales report. Perhaps, some positive domestic economic news will help calm investors’ fears.

In the corporate arena, shares of Macy’s (M) sank after the department store operator delivered weaker-than-anticipated quarterly results and tempered its outlook. The retailer’s results were hampered by the discounting of merchandise, suggesting a competitive climate. On a related note, tomorrow, Walmart (WMTFree Walmart Stock Report) will weigh in with its report.

Technically, stocks have been very choppy this month, with the averages posting sizable moves. This may suggest that investors lack confidence and are in need of some direction. Clearly, the trade problems with China have been a source of confusion and have been weighing on sentiment. The VIX, a sentiment indicator, moved up 27% today, to a reading of roughly 22, which suggests that traders are starting to become unsettled. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


10:50 AM EDT - Earlier we quoted the title of the Dinah Washington 1958 classic "What a difference a day makes," to describe the marked Monday-Tuesday reversal on Wall Street. That same title could well be employed again today to talk about the encore staged so far this morning. Only this time, the market is skidding anew.

Let's recap: On Monday, it was spreading recession fears globally and continuing unrest in Hong Kong that set the bears in motion, pulling the Dow Jones Industrial Average down by 390 points. Yesterday, it was news that the President had decided to delay some tariffs on China and scuttle others that helped set in motion a similar move to the upside.

Now, this morning, we are seeing some second thoughts about the tariffs delays, as a further plunge in the yield on the 10-year Treasury note and the coincident rise in the two-year note's yield, creating a so-called inverted yield curve. Is this pointing to a possible recession up ahead? Couple that concern with a dour release from a key retailer today and the market is plunging again.

All told, as we pass the first hour of trading, the Dow is down 465 points; the S&P 500 is off 52 points; and the NASDAQ is tumbling by 165 points. There is no place for the bulls to hide at this time.  - Harvey S. Katz, CFA  

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Before The Bell - Rarely has the 1959 classic from Dinah Washington entitled "What a difference a day makes," been more on the mark on Wall Street than during the last 48 hours. On point, after the Dow Jones Industrial Average tumbled by nearly 400 points on Monday, as Treasury note yields skidded, protests continued to escalate in Hong Kong, and the trade rift between the United States and China escalated still more, a decision by our government to delay certain tariffs that had been scheduled to go into effect on September 1st and to scrap others altogether helped to turn sentiment and stocks around on a dime yesterday morning.

In fact, within minutes after the open, the Dow would surge by better than 500 points and then proceed to spend the remainder of the session well into the plus column, retaining most of those dramatic early gains. The impact of these delays figure to me major, assuming that they stick, as they range from cellphones, to laptop computers, to video games, toys, footwear and clothing. Not surprisingly, the retail stocks surged as did the shares of Apple (AAPL Free Apple Stock Report). The President said that he did not want to dampen U.S. holiday spending. We also note than these on again, off again moves have happened before.

Nevertheless, the changes were clearly welcomed by Wall Street and what looked like a weak day for the market turned into a major conquest for the heretofore reluctant bulls. However, there continue to be problems and assorted headwinds in place. Thus, investors still are concerned about the mounting protests in Hong Kong and the threat to take military by China. Also, there is the question of falling Treasury note yields, which can be a forerunner of a recession, but often overstates any pending business weakness. Indeed, at this time, we think fears of a recession are overblown, but cannot be totally dismissed.

Meanwhile, after this abrupt early morning turnaround, stocks would stay comfortably and consistently in higher ground right into the close, with most sectors enjoying a strong upward lift. This has been an extremely volatile period for the equity market after a generally calm first half that saw fairly steady gains for the bulls. However, with China continuing to be in the news headlines, with currency shifts an ongoing concern, with oil prices gyrating, and with Brexit (Great Britain's effort to extricate itself from the European Union) still a work in progress, it is little wonder that investors have been fully on edge.

As noted, the advance continued into the close, and when all the numbers were in, the Dow would fashion a gain of 373 points; the S&P 500 would add 43 points; and the tech-driven NASDAQ would close up by 153 points. All in all, this was a reassuring day for the market optimists, but it also underscores the fragility of the markets at this time, with a 390-point Dow plunge on Monday followed by a similar-sized comeback yesterday. What that back-to-back performance shows is that the market is highly receptive to news developments. It also suggests that elevated volatility will persist for some time.     

Looking out to a new day now, and perusing the global markets we see that stocks were higher in Asia overnight, while in Europe the leading bourses are trading with losses on weak economic data out of China at this hour. Elsewhere, oil prices are down and Treasury note yields, which edged higher yesterday, are reversing course at this hour as recession signs in the fixed income markets increase. All of this is pointing to a sharply lower start on Wall Street when equity trading resumes this morning. - Harvey S. Katz, CFA

At the time of this article’s writing, the author held positions in one or more of the companies mentioned.