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Jump in Global Yields Drives Down Demand for Riskier Assets

A comment from ECB President Mario Draghi at his press conference on Thursday led to lower Fed expectations at next week’s July 30-31 monetary policy meeting. Yields around the globe bounced from their lows after Draghi’s comment, driving down demand for higher-risk assets, turning the U.S. equity indexes lower for the session.
James Hyerczyk
Stock Market Risk

The major U.S. stock indexes finished lower on Thursday on increased worries the Federal Reserve may refrain from cutting its benchmark interest rate as expected at next week’s monetary policy meeting. The catalysts behind the shift in sentiment are strong economic data and mixed remarks from European Central Bank President Mario Draghi.

In the cash market, the benchmark S&P 500 Index settled at 3003.67, down 15.89 or -0.57%. The blue chip Dow Jones Industrial Average finished at 27140.98, down 128.99 or -0.51% and the technology-based NASDAQ Composite closed at 8238.54.

Technically, both the S&P 500 Index and the NASDAQ Composite hit record highs, but closed lower for the session, forming a potentially bearish closing price reversal top. The chart pattern doesn’t indicate a change in trend, but it does indicate the selling is greater than the buying at current price levels. It also suggests investors are a little tentative about buying strength and may be looking for a break into a value area.

Stronger-than-Expected Economic Data

On the data front on Thursday, durable goods were much better than expected, leading some investors to believe Friday’s Advance GDP may actually come in better than the current 1.8% forecast

Durable goods orders rose 2% in April, the Commerce Department said Thursday. Traders were looking for a 0.8% increase. The previous month was revised lower to minus 2.3%. Core Durable Goods Orders rose 1.2%, beating the 0.2% forecast.

In other news, Preliminary Wholesale Inventories rose 0.2% and Weekly Unemployment Claims came in at 206K, better than the 220K forecast. The Goods Trade Balance was -74.2 billion. Traders were looking for a -72.4 billion estimate.

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Mixed Message from ECB’s Draghi

A comment from ECB President Mario Draghi at his press conference on Thursday led to lower Fed expectations at next week’s July 30-31 monetary policy meeting. Draghi said there was not a significant risk of a recession in the Euro Zone. This comment shook up the Treasury market and U.S. yields rose as some investors took this to mean the ECB would not be as aggressive in its easing measures and that the Fed could follow suit.

Yields around the globe bounced from their lows after Draghi’s comment, driving down demand for higher-risk assets, turning the U.S. equity indexes lower for the session.

Earnings Results

Shares of Facebook declined after CFO David Wehner said late Wednesday that the company expects revenue to fall “sequentially” going forward. “We also expect more pronounced deceleration in the fourth quarter and into 2020, partially driven by ad-targeting related headwinds and uncertainties,” he said.

Ford shares fell 7.5% after its earnings fell short of estimates and its 2019 guidance disappointed investors. Sellers also continued to pound Boeing, which reported a massive quarterly loss the previous session.  Tesla plummeted 13.6% after the electric car maker reported a bigger-than-expected loss for the previous quarter.

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