It sure was fun while It lasted. Yesterday’s collapse after a higher start finally brought to an end the 109 day streak in which the S&P had not fallen by more than 1%. This streak harkened back to last October 11th and officially ended as the ninth longest run in market history.
At just about 10 AM yesterday, the markets went negative and just kept cascading downward all afternoon. It was one of those classic days where the market exhaled more than it inhaled while it kept making lower highs and lower lows in a staircase pattern. The DOW ended lower by 238 points, the S&P 500 lost 29, and the NASDAQ was the worst of the three major indices with a 108 point shellacking. The Russell 2000 Index of small stocks collapsed 38 points to end the session at 1346.
Yesterday was the worst day of declines since last September. The financials suffered their most negative selloff since the Brexit panic of last June. DOW component GS subtracted 62 points from the index just by itself and regional banks did even worse with declines in the 5% area. There were large declines in former strong members BA, CAT and JPM. The NASDAQ was led lower by big selloffs in AMZN, TSLA, PCLN and GOOG…while both AAPL and FB made new all-time highs.before they sold off, too. In earnings reactions, both GIS and LEN dropped down after their reports.
The financials took that huge downside beating because interest rates continued to edge lower. The 10-year Treasury Note was at 2.43%. The yield curve flattened although this was not supposed to happen after the Fed rate hike last week. This development hurts the banks in their ability to borrow short and lend long.
Observers were pointing to the dollar weakness, which one would like to think would be beneficial to U.S. multinational companies. It should be remembered that 40% of S&P earnings come from overseas. The Euro rose to 1.08 while the Japanese yen strengthened at 112 to the dollar. Gold held at around the $1,245 an ounce level while crude oil sank again, down to around $48 a barrel.
In addition to yesterday’s financial items, there was the ongoing political fallout connected to the administration’s health care repeal bill. Some commentators believe the bill is in trouble with the House of Representative vote scheduled for Thursday. Even if it does pass, it is almost certainly headed for a rough time in the Senate. This debate about the healthcare bill is pushing back the administration’s proposed tax cut and infrastructure spending plans. These have been considered the primary reasons for the huge post-election rally. Finally, we have an administration that is being investigated for collusion with Russia ahead of the election and a president whose approval ratings have plunged to only 39%, the lowest in modern history at this stage for a new administration.
After yesterday’s downside disaster, the markets lay pretty flat on the mat today. The DOW lost 6 points, the S&P gained 4, and the NASDAQ was up 27 thanks to AAPL, AMZN, NFLX, FB, NVDA, and TSLA.
Donald M. Selkin
These are excerpts from Don Selkin’s Daily Market Notes, abbreviated and updated with permission from the author. Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, and the Associated Press.