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End of Day Briefing - Thursday Feb 20, 2020

Stocks take sharp drop but close well off lows
20-Feb-20
Dow -128.05 at 29219.89, Nasdaq -66.21 at 9751.00, S&P -12.92 at 3373.23

[BRIEFING.COM] The S&P 500 took a precipitous 1.3% decline during Thursday's session as stocks pulled back from record highs, but opportunistic investors stepped in to buy the intraday dip. The benchmark index closed lower by just 0.4%, while the Russell 2000 gained 0.2%. The Dow Jones Industrial Average (-0.5%) and Nasdaq Composite (-0.7%) also closed off lows. 

Losses were made most prevalent in the heavily-weighted S&P 500 information technology sector (-1.0%). The defensive-oriented, and rate-sensitive, real estate (+1.2%) and utilities (+0.3%) sectors outperformed amid lower Treasury yields. 

The 2-yr yield declined three basis points to 1.39%, and the 10-yr yield declined five basis points to 1.53%. The U.S. Dollar Index increased 0.2% to 99.87. WTI crude rose 0.8%, or $0.45, to $53.77/BBL. 

Interestingly, U.S. Treasuries had already been on the advance well before losses in the stock market started to accelerate around 11:00 a.m. ET. The defensive positioning came despite weekly jobless claims remaining at low levels and the Philadelphia Fed Index surging to 36.7 in February (Briefing.com consensus 10.7) from 17.0 in January.

One could point to the growing number of coronavirus cases in China for the skittishness, but it seems more reasonable to draw attention to the stock market's overextended posture. Indiscriminate selling in shares of mega-cap technology companies reflected some unwinding of crowded positions. 

Unsurprisingly, though, investors' willingness to buy any weakness in the market prevailed. Probable reasons included low interest rates, decent economic data, and accommodative monetary policy (China cut its one-year loan prime rate to 4.05% from 4.15% on Thursday). Fed Vice Chair Clarida, however, said he doesn't think most market participants expect a rate cut. 

In corporate news, E*Trade ($ETFC 54.73, +9.80, +21.8%) agreed to be acquired by Morgan Stanley ($MS 43.75, -2.56, -4.6%) for $13 billion in stock. ViacomCBS ($VIAC 29.29, -6.38, -17.9%) was the biggest laggard in the S&P 500 after issuing disappointing earnings results and guidance. 

Reviewing Thursday's economic data:

  • Initial claims for the week ending February 15 increased by 4,000 to a still-low 210,000 (Briefing.com consensus 211,000). Continuing claims for the week ending February 8 increased by 25,000 to 1.726 million.
    • The key takeaway from the report is that it covers the week in which the survey is taken for the February employment report, and with initial claims still at low levels, this data point will reinforce expectations for another solid increase in nonfarm payrolls.
  • The Conference Board's Leading Economic Index (LEI) increased 0.8% in January (Briefing.com consensus 0.4%) after decreasing 0.3% in December.
    • The key takeaway from the report is that it showed positive contributions from almost all components after the headline reading decreased in four out of the last five months.
  • The Philadelphia Fed Index for February catapulted to 36.7 (Briefing.com consensus 10.7) from 17.0 in January.

Looking ahead, investors will receive Existing Home Sales for January on Friday.

  • Nasdaq Composite +8.7% YTD
  • S&P 500 +4.4% YTD
  • Dow Jones Industrial Average +2.4% YTD
  • Russell 2000 +1.7% YTD

Market Snapshot

Dow29219.89-128.05(-0.44%)
Nasdaq9751.00-66.21(-0.67%)
SP 5003373.23-12.92(-0.38%)
10-yr Note +5/321.518
NYSEAdv 1774 Dec 1098 Vol 926.3 mln
NasdaqAdv 1733 Dec 1431 Vol 2.7 bln

Industry Watch

Strong: Real Estate, Utilities
Weak: Information Technology, Health Care, Communication Services

Moving the Market

-- Stocks take sharp drop but close well off session lows

-- U.S. Treasuries continued to gain despite better-than-expected economic data

-- Relative strength in bond proxies amid the lower yields


Source: (Briefing.com)

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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