Benchmarks closed in the red on Tuesday as hopes for a U.S.-China trade war resolution dims, and fears of global economic slowdown intensifies. Yield curve inversion also clouds investors’ sentiment.
The Dow Jones Industrial Average (DJI) dropped 0.5% or 120.93 points to close at 25,777.9. The S&P 500 lost 9.22 points or 0.3% to close at 2,869.16. The Nasdaq Composite Index closed at 7,826.95, falling 0.3%. The fear-gauge CBOE Volatility Index (VIX) increased 4.9% to close at 20.31. Decliners outnumbered advancers on the NYSE by a 1.71-to-1 ratio. On Nasdaq, a 2.41-to-1 ratio favored decliners.
Hopes for Trade War Resolution Ebb
Investors hoped that the long-lasting U.S.-China trade war would soon conclude after President Trump said China wanted to return to the table for negotiation. The trade representatives from Beijing confirmed they had called for a “calm” resolution. But, stocks tumbled after China’s foreign minister claimed that he was “not aware of” any phone call from the U.S.
China, on the other hand, has unveiled measures to help boost consumptions to counter the slowdown in their economy. This may also include removal of restrictions on auto purchases.
The Chinese State Council added that it would help commercially struggling malls, stadiums and old factory zones to transform into commercial complexes, gym and entertainment centers. The State Council also mentioned retail hours will get extended to boost economy, and will allow city-level administrators to approve retail sales of refined oil products.
Global Economic Slow Down
German’s economy contracted as a result of weak exports in the second quarter due to the ongoing trade disputes and waning foreign demand. The growth rate eased to 0.4% in the second-quarter compared to 0.9% in the first-quarter.
Since exports fell more than imports in the second-quarter it had and negative impact on the overall growth. Though household spending, state expenditure and private-sector investment in machinery and equipment have all increased, the outlays were not strong enough to beat the massive loss in net trade.
Yield Curve Inversion Increase Recession Fears
Near term recessionary fears due to yield curve inversion dented investor’s sentiment. The spread between the 10-year Treasury yield and 2-year yield slipped to negative 5 basis point, which is the lowest since 2007. The yield on 2-year Treasury note came in at 1.526% while the 10-year note was at 1.476%.
The 30-year Treasury bond reported yield of 1.955% and closed below the 3-month Treasury bill for the first time in the last 12 years. The drop in the treasury yield impacted the financial sector most as bank share fell widely. Bank of America Corporation BAC share fell 1.1% while Citigroup Inc. C and JPMorgan Chase & Co. JPM dropped 1.6% and 1%, respectively.
Bank of America, Citigroup and JPMorgan stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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