Techs Lead Largest Market Rout Since June…..
U.S. equities plunged, posting their largest declines since early June, with tech stocks leading the way after being the main catalyst of an historic rally over the past five months that has fostered all-time highs for the S&P 500 and Nasdaq and the Dow to flirt with uncharted territory. The markets also processed some mixed global reads on key services sector activity, highlighted by continued expansion out of China, the Eurozone, the U.K. and the U.S., but Asian activity outside of China remained in contraction territory. A larger-than-expected moderation in U.S. initial jobless claims also was scrutinized as unemployment remains starkly high, and seasonal adjustments by the Labor Department have clouded the picture. Treasury yields fell as bond prices rose and the U.S. dollar dipped after bouncing yesterday off of a two-year low. Meanwhile, gold was lower and crude oil prices lost ground. In equity news, CrowdStrike saw pressure despite posting stronger-than-expected Q2 results and upping its guidance, Costco Wholesale topped August sales forecasts, and PVH’s upbeat Q2 performance was welcomed by the Street. Europe finished mostly lower, while stocks in Asia were mixed.
The Dow Jones Industrial Average plunged 808 points (2.8%) to 28,293, the S&P 500 Index tumbled 126 points (3.5%) to 3,455, and the Nasdaq Composite plummeted 598 points (5.0%) to 11,458. In heavy volume, 993 million shares were traded on the NYSE and 4.4 billion shares changed hands on the NASDAQ. WTI crude oil shed $0.14 to $41.37 per barrel and wholesale gasoline was unchanged at $1.20 per gallon. Elsewhere, the Bloomberg gold spot price was down $12.19 to $1,930.73 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 92.77.
August services data mixed but holds solidly in expansion territory, jobless claims moderate…..
The August Institute for Supply Management (ISM) non-Manufacturing Index showed expansion in the key services sector (a reading above 50) slowed to 56.9 from July’s 58.1 level, and just south of the Bloomberg forecast of a dip to 57.0. The index decelerated as the new orders component fell 10.9 points to 56.8, the business activity portion declined to 62.4 from 67.2, though backlog of orders ticked 0.7 points higher to 56.6. Ahead of tomorrow’s key nonfarm payroll report, employment improved to 47.9 from 42.1, but remained in contraction territory. The ISM said respondents’ comments are mostly optimistic and industry specific about business conditions and the economy as businesses are starting to reopen. ISM added that industries that have not reopened remain concerned about the ongoing uncertainty and there is a challenge with capacity and logistics due to the pandemic and the impact on deliveries and order fulfillment.
The final Markit U.S. Services PMI Index for August was unexpectedly revised higher to 55.0—the highest reading since March 2019—from the preliminary estimate of 54.8, and compared to expectations of a slight downward revision to 54.7. The Index improved from July’s 50.0 figure, and was above the 50.7 reading a year ago. Markit’s release is independent and differs from the ISM report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in size, including small and medium-sized companies.
Weekly initial jobless claims came in at a level of 881,000 for the week ended August 29th, below the Bloomberg estimate of 950,000, and compared to the prior week’s upwardly-revised 1,011,000 level. The four-week moving average declined by 77,500 to 991,750, while continuing claims for the week ended August 22nd fell by 1,238,000 to 13,254,000, south of estimates of 14,000,000. The four-week moving average of continuing claims dropped by 709,000 to 14,496,250.
The trade balance showed that the July deficit widened much more than expected, coming in at $63.6 billion versus June’s upwardly-revised deficit of $53.5 billion, and compared to expectations of a $58.0 billion shortfall.
Final Q2 nonfarm productivity was revised higher to a 10.1% gain on an annualized quarter-over-quarter (q/q) basis, from the preliminary estimate of a 7.3% rise, and versus expectations of a slight positive revision to a 7.5% increase. Q1 productivity was unrevised at a 0.3% dip. Labor productivity, or output per hour, is calculated by dividing real output by hours worked by all persons, including employees, proprietors, and unpaid family workers, and is a major contributor to the economy’s long-term health and prosperity. Unit labor costs were adjusted to a 9.0% q/q gain, from the preliminary rise of 12.2%, below forecasts of a revision to a 12.0% increase. Unit labor costs were revised lower to an increase of 9.6% in Q1.
Treasuries rose, as the yields on the 2-year and the 10-year notes dipped 1 basis point (bp) to 0.13% and 0.63%, respectively, and the 30-year bond rate decreased 2 bps to 1.36%.
©2020 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.
Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.