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Stocks Falling The Most Since June On Combination Of Trade And Yield Angst

Wednesday, October 10, 2018, 12:29 PM, EST

  • NASDAQ Composite -2.00% Dow -1.35% S&P 500 -1.38% Russell 2000 -1.24%-1.51%
  • NASDAQ Advancers: 665 Decliners: 1640
  • Today’s Volume (100 day avg)+24.48%
  • Crude -2.21%, Gold +0.24%

Market Movers

  • MBA mortgage applications fell 1.7% during the week ending 10/5 after no change the prior week. Purchases were down 1.1%after rising 0,1% in the prior week. Refinancing’s fell 2.6% after falling 0.1% in the prior week
  • September US PPI +0.2% vs. consensus +0.2%; September ex-Food & Energy +0.2% vs. consensus +0.2%. The increase in wholesale inflation over the past year, however, slowed again to 2.6% from 2.8%. The 12-month rate hit a seven-year high of 3.4% just four months ago.
  • August US Wholesale Inventories +1.0% vs. consensus +0.8%
  • China plans to increase the number of companies it deems systemically important financial institutions, a sign that policy makers are stepping up crisis prevention efforts as the nation’s debt burden swells to unprecedented levels.
  • Treasury Secretary Steven Mnuchin has told China not to weaken its currency as the US and China try to resolve their trade differences
  • Two Federal Reserve Presidents are scheduled to speak today. Chicago Fed President Charles Evans will be in Michigan at the Flint & Genesee Chamber of Commerce luncheon; while in Georgia, Atlanta Fed President Raphael Bostic is set to make an appearance at a National Association of Corporate Directors event in Atlanta. Comments will be closely watched after President Trump commented yesterday that he didn’t like what the Fed was doing and he didn’t think they needed to hike rates so quickly
  • Hurricane Michael, upgraded to a category 4, is expected to reach land later today in the Florida panhandle
  • Overseas we were greeted by news that negotiators for the United Kingdom and the European Union are closer to a Brexit deal. It appears that the sticking point of how to avoid a physical border between Ireland and Northern Ireland is being resolved. While other issues remain, it is expected that a deal can be negotiated in time for the summit of EU leaders next week.

Charlie’s Commentary

The markets were unable to sustain the positive momentum displayed midday yesterday finishing mostly lower with the S&P and Russell trading down for a fourth consecutive session. Treasuries were stronger as the yield on the 10 year pulled back from seven year highs reached earlier in the morning. The dollar was weaker vs the major currencies while Gold and crude both traded up.

This morning’s action has started out much the same way the previous four have. With the 10 year yield climbing to 3.23% after declining on Tuesday, stocks are feeling the pressure once again as there is a rising concern that higher yields will crimp corporate earnings. While this has not been widely expressed by the corporate world so far, we have heard from a select few corporations that down the road the combination of tariffs, rising interest rates, currency pressures, slowing demand and rising labor costs will affect earnings.

This was first expressed by PPG yesterday and Trinseo and Fastenal today. Today’s rise in rates is not being helped by the rise in Producer Price Index for September. The Producer Price Index for final demand increased 0.2%, as did the final demand index less food and energy or core PPI. The 0.2% month‐over‐month increases was in‐line with analysts’ estimates.

On a year‐over‐year basis, the index for final demand was up 2.6%, versus 2.8% in August, while the index for final demand less food and energy was up 2.5%, versus 2.3% in August. As this report is seen as a measure of inflation, there is nothing in it to suggest the Fed will deviate from its current pace of raising rates. So today’s mood is distinctively risk off as investors flee equities as they try to gauge if the recent selloff has room to run.

From a sector perspective semiconductor stocks are extending their worst five day slump since April. The Philadelphia Semiconductor Index has fallen close to 3.0 percent. Analysts have been increasingly bearish in recent weeks about the risks of a cyclical downturn in semiconductors. In addition to Technology feeling the heat today, Industrials and Energy are also getting hit. The lone leaders on the day are Utilities and Consumer Staples.

Looking at the commodity space, oil is falling after the IMF lowered its global economic growth forecasts raising concerns that demand for oil products could slump .Gold is trading range bound on expectations of more rate increases and support from the dollar coming off a seven week high. From a technical perspective everything got thrown out the window this morning. The S&P 500 is currently trading below the 50 day moving average (key support) and is bumping up against the 100 day. For now we see the 100 day moving average of 2822 / 2825 as support and the 50 day moving average of 2878 / 2881 as resistance.

That’s it for now. Stay nimble!

Brian’s Technical Take

The October decline is ongoing with all major equity indices in the red today. Growth stocks have been taking the brunt of this month’s selling with the Russell 1000 growth index down 4.4% MTD vs. a decline of just 0.4% for the Russell 1000 Value Index. With interest rates spiking to multi-year highs across the curve, the higher value names are most exposed. The Nasdaq 100 (NDX) is leading to the downside with a decline of 2.2% at this session’s low and is now off 6% from its 52-week high made on October 1st, however all is not lost.

The NDX remains the top performing index in 2018 with a YTD gain of 13.2% vs. 6.6% and 5.8% for its large cap brethren the S&P 500 and Dow Industrials. This month’s decline is now approaching a key inflection point. Momentum is entering “oversold” territory (

While the trading adage “oversold can become more oversold” is certainly possible here, the weekly chart below shows price is approaching a cluster of technical support represented by 1) the multi-year trend line from the June 216 Brexit lows, 2) horizontal support at 7,185 (March high), and the 40-week moving average down 2% at 7,062. Oversold momentum readings, at a major support zone, in an ongoing bull market, amidst strong economic readings, sounds like the ideal recipe to “buy the dip" -- or are things different this time?

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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.