Stocks Sink on Recession Fears .

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Stocks Sink on Recession Fears

Wednesday, August 14, 2019
  • NASDAQ Composite -2.38% Dow -2.14% S&P 500 -2.12% Russell 2000 -2.44%
  • NASDAQ Advancers: 327 / Decliners: 2012
  • Today's Volume (First Hour) -19.1%
  • WTI Crude -3.3%, Gold +0.7%, 10yr Treasury 1.5843%

Market Movers 

  • The 2-year and 10-year treasury yields briefly inverted this morning for the first time since 2007
  • Import prices gained 0.22% in July after falling 1.1% in June
  • Export prices rose 0.2% in July after falling 0.6% in June

Steve’s Commentary

Yesterday’s rally is a thing of the past with the markets opening sharply lower this morning on an inverted yield curve and growing recession worries. The S&P and Dow are trading near Monday’s lows and the Russell 2000 is trading well below, and thus far the market is holding near session lows. Investors awoke this morning to inverted yield curves both in the UK and the US.  Here in the US the yield between the 2-year and 10-year treasuries inverted briefly for the first time since 2007 but now have a positive spread of about 0.018%. Yields on the 30-year also fell to record low of 2.0139%, and recall the yield between the 3-month and 10-year treasuries inverted back in March and have generally remained inverted since. The curve was near inversion yesterday and a dose of soft economic data pushed it over the edge. In China, both industrial production and retail sales fell notably from June, Germany's second quarter GDP contracted by 0.1%, and Eurozone industrial production fell from 0.9% on June to -1.6% in July.
Additionally, the Federal Reserve Bank of New York’s US Recession Probability Index is at its highest since the financial crisis in 2008. Needless to say, expectations of a US rate cut in September are at 100%. All of this comes ahead of tomorrow’s release of US retail sales data. A good number should alleviate some of the recession angst, but retail sales have been generally strong for the past four months so a pullback wouldn’t comes as a surprise. Expectations call for moderate softening with sales ex-food/energy coming in at 0.5% from 0.7% in June. 
The inversion of the 2-year and 10-year has preceded each of the past seven recessions, but that doesn’t necessarily mean sell equities. Bloomberg News notes that in six of the past ten inversions, the S&P rolled over within three months.  On the other four occasions it took about eleven months for equities to top out. One thing traders will look at is the duration of the inversion. Thus far the 2yr/10yr inversion only lasted a few hours at best, but that carries less weight compared to an inversion that persists for a while. 
The sector view looks like Valentine's Day in August – solid red. Energy is hardest hit with a 3.4% decline with all index members in the red. The culprit here is waning demand in light of softening global growth. Financials are the second worst performing sector, off 2.9% since lower rates are seen as hurting profitability.  Consumer Discretionary is off 2.5% with 61 of 62 index members in the red. Following earnings Macy’s is leading the way down with a 16% decline and Nordstrom (-10%) and Kohls (-10%) are along for the ride. The lone green spot are Utilities, up 0.4% is a safely play.
Over in commodities, crude oil gives back most of yesterdays gain as WTI and Brent trade down about 3.5% each. Gold gains 0.7% and recovers all of yesterday’s losses and then some, and the Dollar index holds a 0.1% advance.
Sector Recap


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Brian’s Technical Take
Soft global economic data is laying the smack down on risk sentiment and asset prices.  Weak retail sales and industrial output from China coupled with a contraction in Germany’s Q2 GDP is leading to declines of 1.5% to 2.5% for many global equity indices.  Meanwhile the 10YR – 2YR spread inverted in both the U.S. and U.K.    
The energy sector is seeing the steepest declines following a gain in U.S. crude stockpiles and increasing concerns of a global recession.  The S&P 500 energy index is down 3.1%.  WTI crude is off 3.9% and has given back nearly all of yesterday’s 4% gain sparked by the Trump administration’s announcement to delay imposing additional tariffs on China. 
Within energy the exploration & production ETF, ticker XOP, is off 4.4% in today’s session and for August is down more than 15%.  Two weeks ago in the July 31st MIDDAY Update we highlighted the XOP and noted, despite the equity market +20% and at all-time highs, the XOP was down 20% YTD and more critically was testing the cyclical lows of 2009, 2016, and December 2018. 
This month’s 15% decline has driven the XOP through major support and fresh all-time lows since its inception in 2006. 


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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information. 

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