Multiple Factors Pressure U.S. Stocks including China Sell-off, Rising Rates, Weak Housing Data

Thursday’s pressure began early in the session when U.S. Treasury yields traded back around multi-year highs on Thursday. The rise in yields came a day after the Fed minutes showed the central bank is still convinced tighter monetary policy is the best course of action for the economy to remain steady.
James Hyerczyk
U.S. Stock Market
U.S. Stock Market

Bearish traders returned with a vengeance on Thursday after a one-day reprieve, driving the major U.S. equity indexes sharply lower. Once again investors attributed the selling pressure to worries about the U.S.-China trade war, rising interest rates and lingering concerns about possible overvalued U.S. tech stocks.

In the cash market, the benchmark S&P 500 Index settled at 2768.78, down 40.43 or -1.44%. The blue chip Dow Jones Industrial Average closed at 25379.45, down 327.23 or -1.27% and the technology-driven NASDAQ Composite Index declined 162.48 or -2.13%, to finish at 7480.22.

Shares of Caterpillar were the biggest drag on the Dow. The S&P 500 Index was driven lower by weakness in the consumer discretionary and tech sectors.

Among the biggest losers, economic bellwethers United Rentals and Textron dropped at least 11 percent each. Snap-on and Caterpillar fell 9.6 percent and 3.9 percent, respectively. Facebook and Amazon along with Alphabet and Netflix fell more than 2.5 percent each.

Outside factors also contributed to the sell-off. Stocks fell when Treasury Secretary Steven Mnuchin pulled out of a Saudi Arabia investment conference as traders worried a large global investor in the kingdom is coming under great scrutiny.

Another drop in Chinese stocks to a four year low increased fears that China’s economy, the world’s second largest, could be slowing down, dragging down global growth.

Sellers also hit stocks after European Central Bank President Mario Draghi said one of the risks for the economy was countries trying to circumvent European Union budget rules. Draghi’s comments sent Italian bond yields to their highs of the day and sent major European stock-market indexes to their session lows.

Concerns over global trade added further negative energy to the market. They were fueled by comments from National Economic Council Director Larry Kudlow who went after China. “They are unfair traders. They are illegal traders. They have stolen our intellectual property,” Kudlow said at the Detroit Economic Club on Thursday. “China has not responded positively to any of our asks.”

Disappointing reports on Building Permits and Housing Starts also weighed on stocks particularly the homebuilders and home improvement sectors. The iShares U.S. Home Construction ETF (ITB) dropped 2 percent. They also fell after Bank of America Merrill Lynch downgraded shares of Toll Brothers, Pulte Group and NVR and reduced its forecast for housing starts.

Finally, Thursday’s pressure began early in the session when U.S. Treasury yields traded back around multi-year highs on Thursday. The rise in yields came a day after the Fed minutes showed the central bank is still convinced tighter monetary policy is the best course of action for the economy to remain steady.

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