US Stock Market Overview – Stocks Drop, Volatility Rises and Trump Hints at Tax Cuts

The VIX volatility index rebounds
David Becker
S&P 500 daily chart, August 15, 2019

Stocks dropped as traders took profits ahead of this weeks Jackson Hole symposium, was Fed Chair Jerome Powell could describe the future monetary policy. The President was on the tape, saying that there was no recession on the horizon and said that the Fed should cut rates by 100-basis points. Trump accused the media of talking about a recession and being politically motivated. Home Depot reported softer than expected earnings. Trump was also on the tape describing a potential stimulus package that this administration could deliver. The VIX volatility index after trending lower as the markets rallied. All sectors were lower led down by materials, utilities were the best performing sector.

Home Depot Misses

Home Depot’s fiscal second-quarter sales missed analysts’ expectations, and the company lowered its sales outlook for the year amid fears that the trade war will slow consumer spending. But its earnings topped estimates. Earnings per share, adjusted came in at $3.17 versus expectations of $3.08. Revenue was $30.84 billion versus expectations of $30.99 billion. Same-store sales up 3% versus expectations of growth of 3.5%. Net income for the quarter ended August 4 was $3.48 billion, compared with $3.51 billion, a year ago. Sales climbed 1.2% to $30.84 billion from $30.46 billion a year ago, short of expectations for $30.99 billion.

 

Trump Discusses Tax Cuts

Mr. Trump said his administration was looking at various tax cuts including a proposal to reduce capital-gains taxes by indexing them to inflation, a move that would disproportionately benefit wealthy Americans. The president also suggested he could impose the indexing change through regulatory action rather than through Congress. Separately, The president continues to criticize Fed Chair Jerome Powell ahead of the symposium in Jackson Hole Wyoming this week. This was the latest in a string of disparaging remarks from Mr. Trump since appointing Mr. Powell to lead the Fed. Mr. Trump has lauded economic systems, such as in China, where central banks are under tight control, a view that has raised worries among current and former Fed officials.

The VIX Rebounds and Traders are Offsides

The VIX volatility index rebounded on turnaround Tuesday as stock prices moved lower. The rebound has likely caught hedge funds offsides as increased bearish wagers on futures linked to the VIX to the highest level since September, Commodity Futures Trading Commission data as of August 13. Bearish speculative bets on the VIX futures increased to more than 5-times the number of bullish bets according to the CFTC. A bearish bet on the VIX is similar to at bullish bet on stocks, as higher implied volatility comes in conjunction with lower stock prices.

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