U.S. equities dropped again on Tuesday as traders took risk off the table ahead of a number of potentially negative catalysts arriving on Thursday. These include the Congressional testimony of fired FBI Director James Comey (and the possible reappearance of Trump-Russia headlines that tanked stocks on May 17), a policy decision by the European Central Bank and the results of a snap election in the United Kingdom just days after a bloody terror attack.
Also weighing on sentiment is a persistent bid in safe-haven assets (Treasury bonds and precious metals on the move), a late-session selling program in the popular “FANG” Big Tech stocks, and continuing disappointment in the flow of economic data. Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) lost the $1,000-a-share level.
In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 gave back 0.3%, the Nasdaq Composite wafted down 0.3% and the Russell 2000 finished the day lower by 0.1%. What’s more, Treasury bonds moved higher, pushing the 10-year yield below 2.15% (lowest since November); the dollar dropped; gold gained 1.2%; and crude oil added 1.7% amid tensions in the Persian Gulf between Qatar and Saudi Arabia and its allies.
The strength in precious metals boosted the ProShares Ultra Silver (ETF) (NYSEARCA:AGQ) a gain of 8.5% since first recommended to Edge subscribers on May 1.
Breadth was negative, at 1.2 decliners for every advancing issue on the NYSE. Volume was 95% of the 30-day average. Energy stocks led the way higher with a 1.2% gain while consumer discretionary were the laggards, down 0.8%, amid more weakness in the retail sector. Macy’s Inc (NYSE:M) fell 8.2% after management warned of margin pressure as a result of bloated inventories. Michaels Companies Inc (NASDAQ:MIK) fell 8.5% after first-quarter earnings and revenues missed estimates.
IAMGOLD Corp (USA) (NYSE:IAG) gained 12% in a rare bright spot for precious metals mining on positive results from a feasibility study on its Cote Gold Project. RV maker Thor Industries, Inc. (NYSE:THO) gained 10.1% on a big Q1 earnings beat on solid demand. And Advanced Micro Devices, Inc. (NASDAQ:AMD) rose 6.9% after management told CNBC it’s seeing solid demand for its new offerings in the gaming and cryptocurrency mining markets.
On the economic front, there was a bit of schizophrenia from the Job Openings and Labor Turnover (JOLTs) report, with openings nearly 1 million ahead of hiring as a widening gap pointing to skills scarcity in the labor market. Openings totaled 6.044 million, well above the high estimate of 5.765 million. Hirings totaled 5.051 million.
Should this dynamic continue, the unemployment rate should drift lower and eventually result in long-delayed wage inflation as companies are finally, after so many years, forced to compete for the best workers by hiking pay.
The growing strength in safe-haven assets like Treasury bonds reflects growing unease with equity market valuations at these levels as well as the path of rate hikes from the Federal Reserve going forward. According to Bank of America Merrill Lynch, the “rates market is now pricing in just three more hikes to end 2019, including [this] June” and is bracing for a “sharp slowdown in U.S. growth to trend or even below.”
Stocks have been in their own world, largely because the bulls have been focused on very strong energy-driven Q1 earnings growth and red-hot “soft” survey-based economic data. But with soft data correcting down to tepid activity-based “hard” economic data and with energy prices back below $50-a-barrel, the stage is set for some disappointment.
According to Bank of America, if the bond market is correct in their dour outlook stocks are at risk of a 20% downside move. If equities are correct in their optimism, then long-term rates should increase upwards of 0.6%.
Check out Serge Berger’s Trade of the Day for June 7.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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