Wednesday’s Top Reads
Here are the top stories to read during Wednesday’s trading:
Latest Updates
U.S. stocks were lower on Wednesday in the final hour of trade, as investors awaited earnings results from AI chip maker Nvidia Corp.
The Dow Jones Industrial Average was down nearly 260 points, or 0.6%, trading near 40,993. If the loss holds, it would mark the Dow’s worst daily percentage decline since Aug. 5, when it tumbled 2.6%, according to FactSet.
The S&P 500 was 0.7% lower, while the Nasdaq Composite Index was down 1.1%, at last check.
(BTIG)
Consumer-staples stocks have been leading the S&P 500 in August. But according to one analyst, the sector is due for a pullback.
BTIG’s Jonathan Krinsky pointed out that the weekly relative-strength index, or RSI, of the Consumer Staples Select Sector SPDR Fund recently touched 74, the highest level in 10 years. Technical analysts use RSI as a gauge of momentum for stocks and indexes.
Since 2000, XLP’s weekly RSI has exceeded 73 on 10 occasions. In each case, average returns looking out eight to 10 weeks have been quite negative, Krinsky noted.
But he caveated this by saying he continues to like defensive sectors and that he expects those equities, which include consumer staples, to continue climbing into the end of 2024.
The S&P 500 consumer-staples sector has gained 5.3% in August, the best performance of any of the index’s 11 sectors as of Wednesday afternoon, according to FactSet data.
The Federal Reserve could end up being too early to the rate-cutting party.
Interest-rate cuts could spur “a 2025 reacceleration in real GDP, with 2.5% to 3% inflation becoming entrenched in the economy,” Steven Ricchiuto’s team of U.S. economists at Mizuho Securities wrote in a Wednesday client note.
“Healthy household, corporate and bank balance sheets, accommodative financial-market conditions and excess liquidity all suggest the economy is on a solid upward trajectory,” they said.
They also see potential problems with the Fed’s focus on keeping wages rising “at a healthy clip,” which together with other factors could result in inflationary pressures limiting the ultimate size and speed of the central bank’s rate cuts.
Bitcoin prices were down roughly 5% over the past seven days, dropping to below the $60,000 threshold.
Frances Yu, MarketWatch’s crypto reporter, delves into why, as we move closer to expected Federal Reserve interest-rate cuts in September and to the November U.S. election, things could improve for investors in the sector, as part of her latest installment of Distributed Ledger.
More stocks and sectors have joined in the rally in August, helping to ease concerns about a dangerously concentrated market.
But Wednesday’s slump offered a timely reminder: The major indexes still need technology’s help if the rally is to continue.
Nancy Tengler, CEO and CIO of Laffer Tengler Investments, noted that the market hasn’t quite kicked its dependence on technology in comments shared with MarketWatch via email.
“Tech still matters. Broadening is good (and we have been positioned for that move) but if tech doesn’t work, the market will struggle,” Tengler said.
The S&P 500 and Nasdaq Composite were both down more than 1% in afternoon trading. Among the S&P 500’s 11 sectors, information technology was the worst performer. All members of the Magnificent Seven group of megacap stocks were struggling, too.
Jitters ahead of Nvidia Corp.’s earnings results, which are due after the bell Wednesday, have been credited with contributing to the afternoon selloff in stocks.
“People are nervous about it,” said Robert Pavlik, senior portfolio manger at Dakota Wealth Asset Management, of Nvidia’s looming quarterly results. “The selling has begotten more selling, for no other reason than people being nervous.”
While shares of some megacap technology companies have recovered lost ground since extreme volatility hit markets in early August, the likes of Amazon.com Inc., Microsoft Corp., Alphabet Inc. and Tesla Inc. still were trading lower on the month to date, according to FactSet.
Pavlik said there were signs of profit-taking ahead of the chip maker’s earnings report as investors “raced to get out of the way of the speeding train that is Nvidia.”
Shares of Nike Inc. were under pressure Wednesday, falling sharply to become the worst-performing stock in the Dow Jones Industrial Average in afternoon trading, according to FactSet data, at last check.
Sneaker and sportswear giant Nike was down 3.7%, weighing on the Dow as the U.S. stock market broadly fell.
The Dow, a blue-chip U.S. stock gauge, was down 0.8% on Wednesday afternoon, FactSet data show, at last check.
What looked like a dip has turned into something worse.
U.S. stocks were setting fresh lows in afternoon trade, as investors braced for earnings results after the bell Wednesday from megacap heavyweight Nvidia Corp.
The Dow Jones Industrial Average was down 383 points, or 0.9%, near 40,861.
The S&P 500 was falling 632 points, or 1.1%, to 5,563.
The Nasdaq Composite Index was shedding 300 points, or 1.7%, to 17,463.
Bond-market volatility looks likely, even if the Federal Reserve manages to navigate a soft landing for the economy, according to LPL Financial. (LPL Research, Bank of America Merrill Lynch, Bureau of Labor Statistics, Federal Reserve Board, 08/28/24)
Even if the Federal Reserve pulls off a soft landing for the economy as it pivots to rate cuts, volatility in the bond market should still be expected, according to LPL Financial.
History shows that soft landings are a rare feat following a period of Fed rate hikes. It also points to the risk of patches of volatility in the bond market, no matter what happens with the economy.
“As policy adapts to economic conditions, bond market volatility often rises,” Jeffrey Roach, chief economist at LPL Financial, wrote in emailed comments Wednesday.
To bolster the point, he overlaid the “MOVE index,” a measure of implied volatility of Treasury options, with periods of rate changes going back to 1988, which showed that implied volatility rose. “Even during the mid-1990s, when the Fed was able to orchestrate a soft landing, investors dealt with fixed income volatility,” he wrote.
A team of economists at the Bank for International Settlements decided to dig into what triggered the global meltdown that bulldozed financial markets on Aug. 5.
They found that despite the chaos, markets held up remarkably well. But investors might not be so lucky next time — and there almost certainly will be a next time. As volatility recedes, traders have wasted no time rushing back into some of the same leveraged bets that contributed to the initial selloff, the BIS team said. At the end of the day, nothing has really changed.
“[T]he factors behind the volatility spike and large market moves have not changed significantly. Risk-taking in financial markets remains elevated,” the team said in a BIS Bulletin report published Tuesday.
“Only a share of various trades predicated on low volatility and cheap [Japanese] yen funding appear to have been unwound. Some broader trades funded in the yen, potentially involving more illiquid assets, may be unwound more sluggishly,” the BIS team said in the report.
But the economists didn’t dwell too long on the risks going forward. Instead, they focused their energies on analyzing exactly how things played out on Aug. 5. The result is one of the more comprehensive accountings of what happened across global markets that day.
