Market Insights 12/4/2018

U.S. equities finished sharply lower, subverting last week’s rally, amid myriad concerns, including differing views and lack of details surrounding the trade truce between the U.S. and China, fears of slowing economic growth, and worries of a slowdown in housing following Toll Brothers guidance.

Treasuries finished higher amid a dormant economic calendar, but it was the inversion of some yields that grabbed investors’ attention, adding another wrinkle to the anxiety.

Crude oil prices pared gains to finish slightly higher ahead of this week’s OPEC meeting and the U.S. dollar recovered from an early loss to end only modestly lower, while gold gained ground.

The Markets…

The Dow Jones Industrial Average tumbled 799 points (3.1%) to 25,027

The S&P 500 Index fell 90 points (3.2%) to 2,700

The Nasdaq Composite plunged 283 points (3.8%) to 7,158

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.30 higher to $53.25 per barrel and wholesale gasoline was up $0.01 at $1.44 per gallon

The Bloomberg gold spot price was $8.04 higher at $1,238.71 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.1% to 96.97

Treasury yields fall as concerns resurface

Treasuries were higher, while the U.S. economic calendar was void of any major releases today. The yield on the 2-year note dipped 2 basis points to 2.80%, the yield on the 10-year note dropped 6 bps to 2.91%, and the 30-year bond rate fell 9 bps to 3.17%. The markets are paying close attention to the yield curve, which has flattened and some yields on the short end have inverted compared to the 5-year note to cause some economic concern.

The U.S. dollar overcame early losses to finish only modestly lower and the pressure on the stock markets intensified after last week’s sharp rally that culminated with the agreement between the U.S. and China over the weekend to call a 90-day truce on further tariffs, though skepticism is flaring up regarding the agreement.

Please note: the U.S. financial markets will be closed tomorrow, which has been declared a National Day of Mourning to honor our 41st President, President George H.W. Bush. In addition, with U.S. government offices closed as well, scheduled economic indicators will be pushed to Thursday, except for the Federal Reserve’s Beige Book, which will be released on time tomorrow.

Europe and Asia lower as trade deal garners caution

European equities finished lower, following yesterday’s broad-based advance, though the weekend agreement between the U.S. and China on a 90-day trade truce appeared to foster some uncertainty, particularly in the auto sector, regarding what was agreed to and if it will lead to a permanent agreement.

The euro relinquished early gains versus the U.S. dollar, with the flattening yield curve in the U.S. garnered some attention, while U.K. Brexit ambiguity remained. The U.K. Parliament is debating Prime Minister Theresa May’s Brexit deal this week with a vote expected next week, while an advisory opinion from the European Union’s top court that suggested the U.K. should be able to stop the Brexit process also added another wrinkle to the uncertainty.

Bond yields in the region finished mixed. The energy sector dipped as crude oil prices gave up an early attempt to add to yesterday’s recovery that came as this week’s OPEC meeting is expected to deliver a production cut, and further bolstered by reports that Russia and Saudi Arabia agreed to extend a pact to manage the markets.

Stocks in Asia finished mostly lower following a recent rise with the markets digesting the implications of the weekend trade truce agreement between the U.S. and China. However, Chinese equities continued to gain ground, with those traded on both the mainland and in Hong Kong posting modest gains.

Stocks in Japan fell, with the yen gaining noticeable ground on the U.S. dollar and Australian securities were lower, weighed down by weakness in the banking sector and following the Reserve Bank of Australia’s monetary policy decision to keep its stance unchanged as expected. Meanwhile, markets in South Korea and India also lost ground.