U.S. equities started off higher on Tuesday, but it was a painful finish in the stock market today.
The SPDR S&P 500 ETF (NYSEARCA:SPY) fell 1.2%, the SPDR Dow Jones Industrial Average (NYSEARCA:DIA) slipped 1.3% and the PowerShares QQQ ETF (NASDAQ:QQQ) fell 82 basis points.
However, the Russell 2000 performed much worse, with the iShares Russell 2000 ETF (NYSEARCA:IWM) falling 1.9% on the day. It’s not too surprising to InvestorPlace readers as we outlined the concern in small-cap stocks just a few days ago.
The Fourth Quarter Starts on the Wrong Foot
Tuesday, Oct. 1 marked the first day of the fourth quarter, and it wasn’t a very good one. While last year we entered Q4 2018 near the highs — somewhat similar to this year — it doesn’t mean 2019 will play out just like 2018.
For starters, we have a dovish rate-cutting Federal Reserve right now against a hawkish rake-hiking Fed from last year. With low interest rates and decent earnings, that should keep a bid under the market.
However, it doesn’t help that we continue to have trade war headline risks, while a coming recession in Europe wouldn’t be a surprise given the economic data. The recent U.S. economic data wasn’t so hot, either.
The Institute for Supply Management’s September manufacturing purchasing managers’ index dropped to 47.8% on Tuesday. That’s down from last month’s reading of 49.1% and missed expectations of 50%. Worth pointing out is that sub-50% signals a recession in the manufacturing sector and with two consecutive readings below that mark, investors are feeling jittery.
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When it comes to the SPY ETF, we can see Tuesday’s action puts stock back in an important area.
The SPY is currently sitting right on its 50-day moving average and former resistance through the month of August. Below opens the SPY up to a decline down to $287.50. There it will find uptrend support (blue line) and the 78.6% retracement. Below it, and August range support near $282 and the 200-day moving average are possible.
If current support holds, look to see if the SPY can reclaim the 20-day moving average, and the Fed-day low at $298.25. If it can, that puts $300+ back on the table.
Free Commissions?
Charles Schwab (NYSE:SCHW) announced that it will bring commission-free trading to retail investors. That’s obviously a big win for investors and traders, as they can remove an expense from their total returns. However, it’s a concerning move for SCHW and its margins.
As such, shares tumbled 9.7% on the day, but they fared much better than some of the competition.
E*Trade (NASDAQ:ETFC) crashed 16.4% and TD Ameritrade (NASDAQ:AMTD) crumbled 25.8%. Interactive Brokers (IEX:IBKR) sank almost 10% as well, despite sending a similar ripple through the market last week.
AMTD and SCHW were two of InvestorPlace’s five Top Stock Trades on Tuesday.
Movers in the Stock Market Today
U.S. Steel (NYSE:X) rallied 3.3% after the company announced it will buy a minority 49.9% stake in Big River Steel. The company also has the option to buy the remaining 51.1% stake by 2023.
McCormick (NYSE:MKC) reported third-quarter earnings before the open, rallying 6.8% as a result. Earnings of $1.46 per share beat estimates by 17 cents per share, while revenue of $1.3 billion missed expectations by $10 million and grew 80 basis points year-over-year. Stronger-than-expected guidance caused investors to bid up the stock.
Heard on the Street
A day after a big acquisition, Blackstone (NYSE:BX) was initiated with a new “outperform” rating at Wells Fargo. The analyst is using a $60 price target, implying over 27% upside to the stock price. Despite the call, shares fell more than 3.5% on the day.
VMWare (NASDAQ:VMW) was also upgraded to “outperform” at Wells Fargo, as analysts assigned a $180 price target. The target implies almost 17% upside despite the stock rallying about 2.5% on the day.
NXP Semiconductors (NASDAQ:NXPI) caught an upgrade to outperform at KeyBanc, while analysts set to a $130 price target. The target implies almost 20% upside, while NXPI was mostly flat on the day.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
