Stocks rolled over and dropped hard on Wednesday, reversing an opening gap higher and a mid-day recovery attempt to careen deep into the red in a nasty end-of-session slide.
The decline marked the first negative February for large-caps since 2009, the first down month since October 2016 and the biggest monthly drop for stocks since January 2016 (just before the Shanghai Accord helped stabilize Chinese markets).
In the end, the Dow Jones Industrial Average lost 1.5%, the S&P 500 lost 1.1%, the Nasdaq Composite lost 0.8% and the Russell 2000 lost 1.6%. Treasury bonds strengthened, pushing yields down. Meanwhile, gold inched higher, the dollar was mixed and crude oil slid.
Breadth was heavily negative, with decliners outpacing advancers by a ratio of 2.4-to-1. There were 124 new lows on the NYSE vs. 41 new highs. Volume was heavy, with 4.1 billion shares trading on the NYSE. Real estate and aerospace stocks led the way with a 1.5% and 1.2%, respectively. Railroads and homebuilders were the laggards, down 2.9% each.
The catalyst for the selloff was end-of-day headlines that Special Council Robert Mueller is reportedly investigating whether President Trump was aware of the hack on the Democratic National Committee during the 2016 presidential campaign. In support of this, he is allegedly looking into Trump’s deals with Russia.
Backing up, the dominant headwind is still the specter of wage-push inflation forcing the Federal Reserve to quicken its policy-tightening pace. The consequence of all this is higher long-term bond yields, which push down bond prices and pressure everything from debt-fueled stock buybacks to high-yield “junk” bond spreads.
The 3% level on the 10-year remains the line in the sand.
The reprieve in the selling ended this week when new Fed chairman Jerome Powell went to Congress and sounded a hawkish note talking up the strength of the economy and warning about high financial asset valuations metrics. The Dow Jones has since lost 700 points, has closed back below its 50-day moving average and it looks vulnerable to a retest of the February panic lows.
Catalysts on the horizon include over-the-weekend elections in Europe and next week’s February jobs report. Keep an eye on average hourly earnings, an increase that rattled markets at the start of the month. Edge subscribers are benefiting from the chaos with a 4% gain in the iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) position.
Check out Serge Berger’s Trade of the Day for March 1.
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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