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Stocks Fall on Concerns Over Slowing Global Growth, U.S.-China Trade Deal

Initial jobless claims higher at 234,000.

Thursday, February 7, 2019, 12:31 PM, EST

  • NASDAQ Composite -1.68% Dow -1.32% S&P 500 -1.48% Russell 2000 -1.36%
  • NASDAQ Advancers: 551 / Decliners: 1703
  • Today's Volume (vs. yesterday)+14%
  • Crude $52.33-$1.70, Gold $1308.80-$0.70,VIX17.63+2.25

Market Movers

  • Initial jobless claims higher at 234,000
  • Continuing jobless claims in-line at 1.736 million
  • Earnings reaction: CMG + 13%, IRBT +14%, K -4.5%, ORLY +2.5%, YUM -2%, GPRO +2%, TPR -18%
  • Alector, Inc. made its IPO debut on Nasdaq today under the ticker ALEC, welcome to the family!

Chris’ Commentary

Markets opened lower following a weaker close yesterday that points to some rally “fatigue” for equities. Shares fell after weaker European economic data caused growth concerns to return then took another leg lower after Larry Kudlow got in front of a camera and said, “We’ve got a pretty sizable distance to go here,” when referencing China/U.S. trade talks. After being in an oversold condition in December, stocks have rallied back nicely to start the year. The Nasdaq Composite has rallied back nearly 20% to try to exit bear market territory with Tech leading the way. The WSJ noted today that “The index heavily weights shares of technology firms like Apple Inc., Inc., Google parent Alphabet Inc. and Facebook Inc., which cumulatively lost hundreds of billions of dollars in market value in the final months of 2018… But in recent weeks, rising optimism about U.S.-China trade negotiations and U.S. monetary policy has helped propel stocks across the board higher. And earnings reports from technology behemoths, while mixed, have proved to be better than many investors had feared.”

Earnings are a mixed bag again today. The Bank of England left its key lending rate unchanged at 0.75% and lowered its 2019 GDP growth outlook significantly to 1.2% from 1.7% as Prime Minister May heads to Brussels to meet with EU leaders on the Irish backstop that could lead to hard Brexit exit. Currently 9 of the 11 S&P 500 sectors are trading lower with Energy and Communications down over 1%. Utilities as a defensive play are up 0.2%. Crude oil and Gold both trade lower. The dollar moves higher again. The yield on the 10-yr is slightly lower at 2.66%. M&A headlines crossing the tape this morning as BB&T (BBT) and SunTrust Banks (STI) will combine in an all-stock transaction valued at over $66 billion. YTD, global M&A has top $522 billion of announced or proposed deals which is down 6.2% from this time last year.

In North America, we have seen $331 billion of deals already which is up nearly 10% from this point last year. Unemployment numbers released by the U.S. Department of Labor continue to show demand in the U.S. Reported Initial Jobless Claims were slightly more at 234,000 vs polled expectations of 221,000, which is 19,000 fewer claims that the previous week’s report. Reported Continuing Claims were basically in-line at 1.736 million claims. Continuing claims were revised slightly lower last week to 1.778 million from 1.782 million. The thought is that some peripheral initial claims crept into this week’s numbers as a result of the government shutdown. Chairman Powell spoke yesterday at an event in Washington reiterating that the US economy “is in a good place.” Former FOMC Chair Janet Yellen agrees that the US Economy is strong.

However, on CNBC yesterday Yellen stated that the next move by the FED may be a rate cut. She said that global weakening economies (China and Europe specifically) could pose a danger to the US. She said “If global growth really weakens and that spills over to the United States where financial conditions tighten more and we do see a weakening in the U.S. economy, it's certainly possible that the next move is a cut." The Fed Fund Futures now show a 20% chance of rate cut in 2019 with only a ch4% chance of a rate hike. Earnings season marches on with 312 members of the S&P 500 having reported. The average upside beat has decreased to 3.08% from 3.44% yesterday for the S&P 500 as a whole. The quarterly earnings growth rate rose slightly to 13.9%. The sales growth rate increases to 6.81%. Still to come tonight and tomorrow are EXPE, NWSA, MAT, GT and HAS.

Sector Recap

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Brian’s Technical Take

The merger of BBT and Suntrust (STI) is set to be the largest bank deal in over ten years and the new entity will become the sixth largest commercial bank by assets in the U.S. The deal is a reflection of the easing regulatory environment which had previously limited M&A to smaller and mid-sized banks.

Both BBT (+5%) and STI (+11%) are trading higher in the pre-mkt. Today’s announcement should also provide a tailwind for the broader banking industry. The S&P Regional Bank ETF, ticker KRE, declined 20.5% in 2018 but has rebounded more than 23% off its December lows and as is +15% YTD.

Over the last seven sessions the KRE has consolidated just below the $54 resistance line, but it is now +2% in the pre-mkt to $54.95. This breakout could have some legs and the next potential target could be the declining 200-day moving average, now $58.48.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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