U.S. equities moved lower on Tuesday after a batch of disappointing economic data, currency market volatility and weakness in high-yield bonds.
In the end, the Dow Jones Industrial Average lost 0.8%, the S&P 500 dropped 0.9%, the Nasdaq Composite fell 1.1% and the Russell 2000 ended the day 1.7% lower.
Treasury bonds strengthened on safe haven inflows, while the dollar strengthened to snap a six-day losing streak. Gold was down 0.6%. Elsewhere, crude oil lost 2.5% to close at $43.68 a barrel on reports Iran and Saudi Arabia remain at odds over OPEC’s long-term price strategy.
Commodity-based stocks took it on the chin, with energy companies down 2.2% and materials off 1.7%. Global growth concerns were in focus after a surprise interest rate cut out of Australia, weaker manufacturing data out of China and the United Kingdom, and weak European bank earnings. Here at home, the Citigroup Economic Surprise Index fell to its lowest level in more than ten months.
Adding to the pressure are efforts by Beijing to crack down on commodity speculation with steel and iron ore futures down sharply overnight.
On the earnings front, American International Group Inc (NYSE:AIG) lost 1.2% after posting an earnings miss on weaker income. UBS Group AG (USA) (NYSE:UBS) fell 7.7% after pre-tax profit missed expectations by 11%. On the upside, Clorox Co (NYSE:CLX) gained 2% on a fiscal Q3 EPS beat on better organic growth and strong guidance. Yelp Inc (NYSE:YELP) gained 3% after Greenlight Capital disclosed a stake.
On a technical basis, there were a number of notable moves today.
The iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM) fell to test its 50-day moving average for the first time since late February, as strength in the dollar and worries about the health of the global economy hit foreign equities.
Treasury bonds are attacking their 20-day moving average in what looks like the first new short-term uptrend since March. And small-cap stocks in the Russell 2000 have dropped below their 200-day moving average, reversing a breakout from early April.
The situation is vulnerable as we head into Friday’s all-important non-farm payrolls report. Analysts are looking for 200,000 payroll gains and a 0.1% drop in the unemployment rate to 4.9%. A solid report will increase the odds of a June rate hike from the Federal Reserve, and further unnerve freshly rattled markets.
In response, I’m recommending defensive positions, such as the Intel Corporation (NASDAQ:INTC) May $31 puts up more than 100% for Edge Pro subscribers, or the Credit Suisse AG – VelocityShares Daily 2x VIX Short Term ETN (NASDAQ:TVIX), which gained 8% for Edge subscribers today.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
