Credit: Shutterstock photoThursday, October 4, 2018, 12:16 PM, EST
- NASDAQ Composite -1.50% Dow -0.82% S&P 500 -0.72% Russell 2000-0.81%
- NASDAQ Advancers: 670 Decliners: 1636
- Today's Volume +6.48%
- Crude -1.15%, Gold +0.53%
Market Movers
- US Challenger September Job cuts rise 70.9% from a year earlier
- US jobless claims for the week ending September 29th fell by 8,000 to 207,000. Continuing claims for the week ending September 22nd were 1.65 million
- Bloomberg Consumer Comfort for the period ending September 30th came in at 61.6
- August US Factory Orders +2.3% vs. consensus +2.0%
- Final Durable Goods for August came in at 4.4% vs consensus 4.5%
- Randall Quarles, the Federal reserve's Vice Chairman for supervision is in St. Louis attending the Community Banking in the 21st Century Research / Policy Conference
- Hortonworks (HDP) and Cloudera (CLDR) announced an agreement to combine in an all stock merger of equals
- Nasdaq welcomes two IPO's today. Guardian Health (GH) priced 12.5 million shares at $19.00. Kodiak Sciences priced 10 million shares at $9.00
Charlie's Commentary
Stocks pulled back from record highs as a selloff in Treasuries deepened amid a surge in volume. The Dow touched a fresh record and finished higher for the fifth straight session. Energy and financials were the best performers, while defensive stocks were the biggest laggards. Treasuries saw a sizable selloff and a surge in volume. 30 year treasury yields popped to the highest since 2014 while the 10 year yield hit levels not seen since 2011. More than two million 10 year futures contracts traded before the 3:00 pm settlement yesterday afternoon which was 170% higher than the average.
The dollar was higher against the yen and euro. Gold finished down 0.3%. WTI settled up 1.6%, a bit off best levels. The bond sell off continued into Asia and Europe overnight and this morning which has spurred gains for the dollar and pain in the equity world so far. The rout in bonds and the subsequent meteoric rise in yields is seriously challenging the appetite for other assets in general. Higher yields can often curb the enthusiasm for equities as it offers higher returns for income seeking investors without the risk of volatility often associated with stocks.
Earlier this morning the 10 year yield broke above 3.2%, its highest level since 2011. That caused the Dow to drop by 250 points before recovering somewhat. The bond slump also probably reflects the world's central banks stepping away from stimulus. The ECB recently cut asset purchases in half while domestically the Fed continues to unwind its balance sheet. Turning to the economic reports today initial jobless claims fell to 207,000 a 49 year low as investors get ready for the September jobs report that comes out tomorrow. August Factory Orders came in stronger than expected at 2.3% well above the adjusted -0.5% for the previous period.
Looking at the commodity space, oil is easing from four year highs tempered by the prospect of a rapid production boost from Russia and Saudi Arabia. Gold is trading range bound as continued positive economic data and hawkish comments from the Federal Reserve boost the dollar. Sector performance is pretty weak overall with Financials leading getting a boost from rising interest rates. Rate sensitive sectors such as REIT's and Utilities are lagging Treasuries remain lower pushing yields up with the 10 year Treasury currently at 3.20% From a technical perspective we see support on the S&P 500 at 2911/ 2914 with resistance at 2921/ 2925. That's all for now. Have a great day!
Sector Recap
Brian's Technical Take
The long end of the curve is dragging rates higher this week as both the 10-year and 30-year Treasury yields are "breaking out" to fresh multi-year highs. In last month's MID BLOG we highlighted the "critical inflection point" of the 20-year duration bond ETF, ticker TLT, which was at risk of breaking down below clearly defined, multi-year support. We noted then "a breakdown below this multi-year support could realistically see accelerating downside price action, and thus rates accelerating to the upside." This week the breakdown has triggered and downside momentum is accelerating.
With nearly two full sessions remaining this week, the TLT is already seeing its sharpest selloff since the first week of February. Back then treasuries sold off sharply following inflationary data reported in the higher than expected average hourly earnings figure, which led equity indices to quickly register double digit declines. This time around rates are spiking higher due again to rising inflation expectations from the improving trade outlook between Canada and the US (NAFTA 2.0), as well as yesterday's "bullish" ADP employment report. In addition Fed Chairman Powell has been making the rounds this week with four public appearances talking up the US economy and even suggested the Fed "may go past neutral".
Tomorrow's monthly NFP report will provide the latest average hourly earnings figure which is expected to rise 2.8% YoY. A higher than expected figure could accelerate the current spike in rates, particularly on the long end given the current technicals. The below weekly period chart of the 30-year yield is this week breaking out above a clearly defined, three year resistance zone at the 3.20% - 3.25% range, to a high of 3.39% today. Typically breakouts above multi-year ranges are often accompanied by powerful momentum. This particular technical setup, combined with the fundamentals of low unemployment, rising wages, and an "improving" trade outlook could be the kindle that accelerates a continued run higher in yields. How stocks react to such a scenario remains to be seen. Last time it was not good
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
