U.S. markets were hit with heavy losses on Thursday following a slew of economic news and a heavy bout of profit taking following 2 weeks of strong gains. The selloff was the worst single-day selloff since June and July for the major indexes but was needed to work off extremely overbought conditions, especially in a number of Tech stocks.
The losses erased the weekly gains for the major indexes with volatility spiking to a multi-month high. The damage comes ahead of a long 3-day weekend following the conclusion of Friday’s close and all important jobs opening ahead of the opening bell.
The Nasdaq plummeted 5% to snap a 4-session winning streak with the 2nd half low tapping 11,361. Fresh and upper support at 11,400-11,300 was triggered but held. A move below the latter would indicate additional weakness towards the 11,150-11,000 area.
The S&P 500 sank 3.5% after testing an intraday low of 3,427. New and upper support at 3,450-3,425 was tripped but held. A close below the latter would signal additional pullback potential towards 3,400-3,375.
The Russell 2000 tumbled 3% while trading to an afternoon low of 1,538. Prior and upper support from early August at 1,550-1,535 failed to hold. A fall below the latter would reopen a further backtest towards 1,525-1,510.
The Dow tanked 2.8% with the morning low reaching 28,074. Upper support from mid-August at 28,250-28,000 was breached but held. A drop below the latter would suggest a further pullback towards 27,750-27,500.
Technology was the weakest sector with a loss of 5.7% while Communications Services and Consumer Discretionary fell 3.4% and 3.2%, respectively. There was no sector strength.
Global Economy
European markets settled lower following news the eurozone’s economy contracted 12.1% as lockdowns led to businesses being shuttered and citizens staying home.
UK’s FTSE 100 tanked 1.5% while the Stoxx 600 and Germany’s DAX 30 stumbled 1.4%. The Belgium20 was off 0.9% and France’s CAC 40 down 0.4%.
The eurozone IHS Markit’s final Composite Purchasing Managers’ Index sank to 51.9 last month from July’s 54.9 print while the services PMI fell to 50.5 from 54.7, better than its flash reading of 50.1.
Asian markets were mixed after India banned Chinese apps following a standoff with Beijing at the border.
South Korea’s Kospi jumped 1.3% and Japan’s Nikkei rose 0.9%. Australia’s S&P/ASX 200 advanced 0.8%. China’s Shanghai fell 0.6% and Hong Kong’s Hang Seng gave back 0.5%.
Japan’s PMI inched down to a seasonally adjusted 45 in August from 45.4 in the previous month, pressured by weakening new business and business expectations.
China’s General Services Business Activity Index slipped to 54 last month from 54.1 in July, but remained in expansionary territory for the 4th-straight month.
U.S. Economy
Initial Jobless Claims dropped -130,000 to 881,000, versus forecasts of 977,000, and follows the -93,000 drop to 1,011,000 in the prior week. The 4-week moving average declined to 991,750 after dipping to 1,069,250 previously. On a not seasonally adjusted basis, claims were 7,600 higher at 833,400 after falling -64,000 to 825,800. Continuing claims tumbled -1,238,000 to 13,254,000 after declining -267,000 to 14,492,000 previously.
Challenger Job-Cut Report announced layoffs declined -146,800 to 115,800 in August after rising 92,400 to 262,600 in July. Announced layoffs are up 116.5% year-over-year. Transportation was the leading sector for job cuts in August amid weakness in travel and uncertainties over government intervention, according to the report. Entertainment/leisure reported the second highest number of announced layoffs. Announced hirings dropped -86,100 in August to 160,400.
Q2 productivity was revised higher to a 10.1% pace of growth versus 7.3% in the preliminary report, and -0.3% in Q1. Q2 unit labor costs were nudged down to a 9% growth rate from 12.2% initially and compares to Q1’s 9.6% rate of growth. Output was revised up to -37.1% from -38.9%, and was at a -6.4% rate of contraction in Q1. Q2 hours worked were revised to -42.9% from -43%, and were at a -6.1% clip in Q1. Compensation per hour was bumped down to a 20% growth rate in Q2 from the preliminary 20.4% print versus 9.2% growth in Q1.
U.S. trade deficit widened 18.9% to -$63.6 billion in July, larger than forecast for a print of -$58.5 billion, after narrowing -7.6% in June to -$53.5 billion. Exports increased another 8.1% to $168.1 billion after bouncing 9.6% to $155.5 billion in June. Imports climbed 10.9% to $231.7 billion following the 4.6% rebound to $208.9 billion previously. Excluding petroleum, the July deficit rose to -$65.7 billion from -$54.8 billion in June. The real goods deficit widened to -$90.5 billion versus -$80.3 billion in preciously.
PMI Composite Flash rose to 55 in the final read for August, up from the 54.8 preliminary reading. The employment component jumped to 55.6 from 51 previously and represents the strongest print since June 2014. The composite index dipped to 54.6 in the final version versus the 54.7 preliminary reading. The employment component improved from July and hit its best level since February 2019.
ISM Services Index fell 1.2 points to 56.9 in August, just below expectations of 57, after rising 1 point to 58.1 in July. The employment component jumped 5.8 points to 47.9 from 42.1. New orders dropped back -10.9 points to 56.8 from 67.7 previously. The change in inventories fell to 45.8 from 52 while inventory sentiment edged up to 52.5 from 50. New export orders rallied to 55.8 from 49.3, while imports rose to 50.8 from 46.3. Prices paid slid to 62.4 from 67.2.
Market Sentiment
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 4th-straight session with the morning high reaching $167.24. Prior and lower resistance from late August at $167-$167.50 was breached but held on the close just below the 50-day moving average.
Current and rising support is at $165.50-$165 followed by $164-$163.50.
Volatility Index
The S&P 500 Volatility Index ($VIX) was up for the 3rd time in 4 sessions after surging to a late day peak of 35.94. Prior and lower resistance from mid-June at 35.50-36 was breached but held. A close above the 37.50 level would suggest a retest towards 40-45.
Fresh support is at 33-32.50 followed by 30.50-30.
Market Analysis
The Wilshire 5000 Composite Index ($WLSH) fell for just the 2nd time in 11 sessions with the afternoon low tagging 35,010. Fresh and upper support at 35,250-35,000 was breached but held. A close below the latter would signal additional weakness towards 34,750-34,500 and levels from mid-August.
Current and lowered resistance is at 35,500-35,750 followed by 36,000-36,250.
RSI is back in a downtrend with upper support at 55-50 holding. A close below the latter would signal a retest towards the 45 level and the low from late June. Resistance is at 60-65.
Sector
The Real Estate Select Sector Spider (XLRE) was down for the 3rd time in 4 sessions despite trading to an opening high of $37.20. Near-term and lower resistance at $37.25-$37.50 was cleared but held.
The fade to $36.11 with current and upper support at $36.25-$36 was breached but held. A close below the latter reopens downside risk towards $35.75-$35.50 and the 200-day and 50-day moving averages.
RSI is back,in a downtrend with upper support is at 55-50 failing to hold. There is risk towards 45-40 and levels from late June and mid-May on a close below the 50 level. Resistance is at 60.
