U.S. equities finished sharply lower on Thursday, although off of their worst levels, as a rise in long-term interest rates and recent central bank hawkishness took a toll. Big-cap tech stocks resumed their on-again, off-again weakness, dragging the major indices lower.
In the end, the Dow Jones Industrial Average lost 0.8%, the S&P 500 lost 0.9%, the Nasdaq Composite lost 1.4% and the Russell 2000 lost 0.6%. Treasury bonds extended their recent selloff, the dollar weakened, gold fell 0.3% and crude oil gained 0.4% for the sixth straight gain.
Breadth was heavily negative, with 2.4 decliners for every advancing issue on the NYSE.
Technology stocks were on the chopping block, down 1.8% as a group: Facebook Inc (NASDAQ:FB) fell 1.4%, Amazon.com, Inc. (NASDAQ:AMZN) fell 1.5%, Apple Inc. (NASDAQ:AAPL) fell 1.5%, Microsoft Corporation (NASDAQ:MSFT) fell 1.9% and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) fell 2.4%.
Semiconductors were among the day’s hardest hit, with Nvidia Corporation (NASDAQ:NVDA) down 3.3% and Advanced Micro Devices, Inc. (NASDAQ:AMD) down 4.8% as The Wall Street Journal suggests the company’s revenues are too exposed to cryptocurrency mining.
Qualcomm, Inc. (NASDAQ:QCOM) fell 1.9%, boosting the July QCOM $56 puts recommended to Edge Pro subscribers to a 67% gain since added on Tuesday.
Financials bucked the trend to gain 0.7% as a group thanks to net interest margin hopes. The Financial Select Sector SPDR Fund (NYSEARCA:XLF) is on the verge of an upside breakout from a long seven-month consolidation pattern. It’ll be interesting to see how the market bulls reconcile tech weakness/bank strength since both are heavily weighed sectors in the major averages.
Also helping the banks was the announcement of capital return plans last night following the passage of Federal Reserve “stress test” capital tests. Citigroup Inc (NYSE:C) gained 2.8% on a larger-than-expected 100% dividend increase and a $15.6 billion buyback plan.
In other corporate news, Staples, Inc. (NASDAQ:SPLS) gained 1.5% after agreeing to be acquired by Sycamore Partners for $10.25 per share in cash or nearly $7 billion. Groupon Inc (NASDAQ:GRPN) gained 4.3% on an upgrade from analysts at B Riley. And Lululemon Athletica Inc. (NASDAQ:LULU) gained 5.2% after its chairman purchased $5.5 million worth of shares.
Rite Aid Corporation (NYSE:RAD) collapsed 26.5% after the company and Walgreens Boots Alliance Inc (NASDAQ:WBA) terminated their merger agreement due to regulator opposition. WBA will still acquire nearly 2,200 stores for $5.2 billion in cash. The company also announced Q1 earnings well below estimates on a 3.9% decline in same-store sales.
Conclusion
The single biggest dynamic in play right now is the weakness hitting Treasury bonds as shown above.
This is being driven by hawkish commentary from Federal Reserve officials lately, who have echoed each other on worries about elevated asset price valuations (stocks too expensive), leverage (too much credit overhang), reach-for-yield behavior (sentiment too hot), and the fact that credit conditions have loosened since they started tightening policy in December 2015 (based largely on the fact stock prices are up some 20% since then.
Click to Enlarge
There is a technical element to the action as well amid a reversal of some recent trends: Crude oil is up six days in a row, which is boosting inflation expectations, lifting long-term yields (thus weakening bonds), and weakening the dollar (down five of the last seven days).
This is the best opportunity the bears have had in months to pile on: The Nasdaq 100 closed back below its 50-day moving average, a level that hasn’t been traded below in a major way since early December.
That’s great news for the ProShares UltraShort QQQ (ETF) (NYSEARCA:QID).
Check out Serge Berger’s Trade of the Day for June 30.
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.
Tell us what you think about this article! Drop us an email at editor@investorplace.com, chat with us on Twitter at @InvestorPlace or comment on the post on Facebook. Read more about our comments policy here.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.
