U.S. equities finished lower on Thursday as an ongoing rally in Treasury bonds — and a drop in long-term interest rates — dampened spirits. This is a side effect of last Friday’s disappointing payrolls report, which torpedoed the odds of a June or July interest rate hike by the Federal Reserve.
While this was initially considered a good thing for liquidity addicted markets, the drop in long-term interest rates has weighed on bank stocks on net interest margin concerns. Also, we continue to see a steady bid in the CBOE Volatility Index (INDEXCBOE:VIX) for the second consecutive day, a sign options traders are buying up put option protection against an equity pullback.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.3% and the Russell 2000 ended the day 0.6% lower. T-bonds were stronger, the dollar was higher, gold gained 0.8% and crude oil lost 1.3% to close at $50.58 a barrel.
Government bonds worldwide have been rallying, pushing U.S. 10-year yields under 1.7% — a level that was last seen during the stock market rout at the beginning of the year. German 10-year bond yields traded below 0.03%. Around $10 trillion in global government bonds are now trading with a negative yield, a vote of no confidence in the recovery from fixed-income traders.
Music streaming icon Pandora Media Inc (NYSE:P) jumped 4% on an analyst upgrade from Axiom on the belief it is poised to capture further market share and makes an attractive acquisition target, but settled at a gain of 1.2%.
Financials led the decliners, down 0.8% followed by materials, down 0.6%. Bank stocks lost 1.3%, with Bank of America Corp (BAC) down 1.7% and Wells Fargo & Co (NYSE:WFC) also down 1.7% near its 50-day moving average.
Groupon Inc (NASDAQ:GRPN) lost 6.3% on reports of tepid customer engagement and growth. Restoration Hardware Holdings Inc (NYSE:RH) lost 21.2% on disappointing forward guidance that was 36% below the consensus midpoint due to larger-than-expected operational costs.
Watch stock market volatility to increase further as we head into the Federal Reserve’s policy announcement, press conference, and release of updated economic and rate hike forecasts next Wednesday.
Technically, stocks remain stalled at an epic three-year resistance level near Dow 18,000 as fundamental factors — from an ongoing earnings recession to very extended valuations metrics — remain serious and intensifying headwinds.
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.
