Markets ended in the negative territory on Wednesday as long-term bond yields declined and widened the yield curve inversion. This triggered fears of an economic slowdown in the near term. Further, trade-war tensions between the United States and China escalated further after China hinted at restricting its exports of rare-earth minerals to the United States.
Finally, Robert Mueller’s public statement gave rise to speculations of a political instability with the United States. The three major benchmarks ended in the red.
The Dow Jones Industrial Average (DJI) decreased 0.9%, to close at 25,126.41. The S&P 500 decreased 0.7% to close at 2,783.02. The tech-laden Nasdaq Composite Index closed at 7,547.31, losing 0.8%. The fear-gauge CBOE Volatility Index (VIX) decreased 1.4% to close at 17.26. Decliners outnumbered advancers on the NYSE by a 2.05-to-1 ratio. On Nasdaq, a 2.23-to-1 ratio favored declining issues.
How Did the Benchmarks Perform?
The Dow nosedived 221.4 points to close in the red. Losses for the 30-stock index were broad based and had fallen more than 400 points at its intraday lows. Shares of Nike NKE and Boeing BA dropped 2.9% and 1.7%, respectively and weighed on the Dow. Boeing carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 dropped 19.4 points to end in negative territory. Of the 11 major sectors of the S&P 500, 10 ended in red, with real estate and utilities stocks leading the decliners. The Real Estate Select Sector SPDR Fund (XLRE) and Utilities Select Sector SPDR Fund (XLU) decreased 1.2% and 1.3%, respectively on Wednesday.
Meanwhile, the Nasdaq dipped 60 points to close in the red. Shares of Apple AAPL lost 0.5% and weighed on the Nasdaq.
China Hints at Using Rare Earths as an Economic Weapon
Trade tensions between the United States and China escalated further on May 29 after China’s state media hinted that the country was considering using its supremacy in rare earth minerals as a weapon in the trade war against America. China owns about 40% of the global rare earth mineral resources.
This “veiled threat” by the Chinese media targets America’s technology and defense industries. The media also quoted an official from China’s National Development and Reform Commission as saying that China’s people won’t agree to anyone using “imported rare earths against China.” Further, editor in chief of the country’s Global Times newspaper tweeted that China was considering restricting exports of rare earth mineral to the United States.
Yield Curve Inversion Points Toward an Impending Recession
A rally in global bonds weighed on yields on May 29. This resulted in Long-term government debt yields falling below that on short-term notes and bills. While, the 3-month bill yield increased to 2.362%, the yield on 10-year Treasury note fell to 2.26%, its lowest level since Sep 2017.
Such a phenomenon, also called the yield curve inversion, is an indicator of an impending recession. As a matter of fact, the yield curve inversion between 3-month Treasury bill and the 10-year Treasury note increased to its highest levels since the financial crisis. Such an event weighed on the investor sentiment.
Mueller Speaks on Russia Probe
Special counsel Robert Mueller made a public statement for the first time on his two-year probe into the alleged Russian meddling in the Presidential elections of 2016. Mueller stated that his team did not have the “confidence that the president had not committed a crime.”
He also stated that charging President Donald Trump was “not an option” as the Justice Department policy forbids indicting a sitting President. He further went on to say that accusing someone who is not available to defend themselves was outright unfair. Finally, he stated that he was resigning from his post at the Justice Department since his investigation was complete.
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