US Stock Market Overview – Stocks Drop but Settle off Their Lows as Yield Curve Inverts

US equity markets were on the defensive as trade issues continued to point to slower economic growth. The US bond market continued to make a fresh 2-year low, with the 10-year yield hitting 2.21%. The 10-year yield is below the 3-month treasury bill which is at 2.36%, which shows that bond traders are now pricing in a recession. The Fed fund futures are now pricing in a 66% chance of a rate cut in September and a 60% change of a rate cut by January of 2020. Retail stocks took a bruising led down by Canada Goose. The VIX volatility index which tracks the implied volatility of the S&P 500 index shot up nearly 5% rising above 18%.

Most sectors were lower, as the markets were driven down by Consumer Discretionary shares. Financials bucked the trend. The retail sectors was the worst performer in the consumer discretionary shares with Capri Holdings down 9.85% and L Brands down 7.06%.

Retail Stocks Take a Beating

Retail sales took a beating on Wednesday slammed by weak earnings reports and the continued threat of additional Chinese tariffs. Canada Goose shares lost more than a quarter of their value after the company said sales growth in the coming three years would decellerate. Abercrombie & Fitch shares were down nearly 25% as momentum cooled off at its Hollister brand during the latest quarter. Retailer American Eagle down dropped 5%. Michael Kors owner Capri Holdings’ stock fell about 10% as it’s suffering from poor demand for its handbags. A foreshadow of weakness to come was when CFO Scott Lipesky told analysts on a post-earnings conference call the retailer hasn’t yet baked additional tariffs into its earnings outlook. Abercrombie imported about 25% of its merchandise receipts from China to the US in fiscal 2018.

Mueller Provides a Press Conference

To add to the volatility in the market place, Special Council Robert Mueller gave a press conference on Wednesday. The special council was in essence closing down the office but wanted to provide some clarity to his report and his willingness to testify in front of congress. What Mueller said provided solace for both sides of the isle. Mueller reiterated many times that the Department of Justice does not allow anyone to charge a sitting president of any crime. With this as a backdrop they did not make any determination of a crime. Mueller went on to say that this was the main reason that the information was pasted on to congress as they would need to deal with the Presidents conduct. With polarization in Washington DC and this as the backdrop, its unlikely that the US government is able to pass any new legislation. Mueller at the end of his press conference said that there were several attempts to interfere with the 2016 elections and all Americans should be leery if this issue.