U.S. equities fell again on Thursday as long-term government bonds came under selling pressure — a dynamic, related to “risk parity” strategies, that pressured markets a few weeks ago.
The bad news continues after the close as Big Tech momentum sweetheart Amazon.com, Inc. (NASDAQ:AMZN) fell more than 5% in extended trading after reporting weaker-than-expected earnings of 52 cents per share vs. the 85 cents that were expected on a big drop in profitability. Forward guidance was also weak.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 Index lost 0.3%, the Nasdaq Composite lost 0.7% and the Russell 2000 lost 1.2%. Elsewhere, the dollar was higher, gold gained 0.2% and crude oil gained 1.4%.
The 10-year Treasury yield increased five basis points to 1.84% as prices came under pressure on indications of some better global economic growth and indications that inflation here at home — driven by health care, energy, and shelter costs — could become a growing problem in the months to come.
Defensive telecom stocks led the way with a 1.6% gain while consumer discretionary were the laggards, down 0.9%. F5 Networks, Inc. (NASDAQ:FFIV) gained 9.6% on a top- and bottom-line beat. Cheesecake Factory Inc (NASDAQ:CAKE) brushed aside some of the selling pressure hitting consumer stocks to rise 5.9% thanks to an earnings beat driven by a 1.7% jump in comp sales versus the 0.8% jump expected.
On the downside, GNC Holdings Inc (NYSE:GNC) dropped nearly 25% on a big earnings miss as comp-store sales dropped 8.5%. Groupon Inc (NASDAQ:GRPN) fell 22.1% despite solid results on concerns over a drop in billings, a focus on discounting and lost patience in management’s turnaround plan.
With breadth rolling over badly as fewer and fewer stocks moved to the upside, small-cap stocks have collapsed out of a four-month trading range to return to early July levels.
This puts the entire post-Brexit surge at risk as concerns including political nervousness surrounding the upcoming U.S. presidential election, the specter of a December rate hike from the Federal Reserve, tepid U.S. economic data and ongoing concerns about corporate earnings weigh on investor sentiment.
Add to this renewed pressure on U.S. Treasury bonds, and the risk of a meaningful market correction has done up substantially.
That’s good news for Edge subscribers, with their ProShares UltraShort Treasury Bond (NYSEARCA:TBT) holding up another 2.2% today for a total gain of 10.4% since recommended in August.