Stocks Have Mixed Day As UK Political Uncertainty Weighs On Markets

 Commenting on today’s trading Gorilla Trades strategist Ken Berman said: 

Although stocks were under pressure most of the day, the late-session bounce could mean that last week’s rally will soon resume, despite the resurfacing trade-related fears. With all eyes on the British Parliament and the pound’s roller coaster today, stocks drifted sideways after the bearish open, but the Dow and the S&P 500 closed near their intraday highs, so we could be in for a rebound tomorrow.

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The major indices all finished the day in the red today, but despite the gloomy global investor sentiment, stocks avoided a damaging sell-off, despite the scary start to the first session of the month. The Dow was down 285 or 1.1%, to 26,118, the Nasdaq lost 89, or 1.1%, to 7,847, while the S&P 500 fell by 22, or 0.8%, to 2,904. Decliners outnumbered advancing issues by an almost 3-to-1 ratio on the NYSE, where volume was slightly above average.

The major indices all finished the day in the red today, but despite the gloomy global investor sentiment, stocks avoided a damaging sell-off, despite the scary start to the first session of the month. The Dow was down 285 or 1.1%, to 26,118, the Nasdaq lost 89, or 1.1%, to 7,847, while the S&P 500 fell by 22, or 0.8%, to 2,904. Decliners outnumbered advancing issues by an almost 3-to-1 ratio on the NYSE, where volume was slightly above average.

The first trading day of September lived up to the expectations with regards to volatility and trading activity, as all of the major asset classes provided plenty of action. The worse-than-expected ISM manufacturing PMI, the unexpected plot twist in the Brexit saga, and the President’s China-related tweets all contributed to the hectic day in financial markets that saw another risk-off shift following the rally in the second half of last week.

While all of the key risk-on sectors lost ground today, with especially industrials and tech stocks getting hit hard, consumer-related issued remained very strong and the defensive utilities jumped higher. The first below-50 reading in the manufacturing PMI means that the sector, which is already in recession in Europe, could remain a drag on growth in the coming months, even though we got a few positive forward-looking indicators in the second half of August. On the other hand, the consumer economy remains strong, making this week’s government jobs report even more important than usual.

A real drama unfolded in the British Parliament today, as Prime Minister Boris Johnson’s government lost its majority while he was giving speech, when a defecting party member walked over to join the ranks of one of the opposition parties. Suddenly, a no-deal Brexit seems less likely, as the opposition is now pushing for a motion blocking the risky outcome. With the October 15 Brexit deadline quickly approaching, the political turmoil will likely continue in the coming weeks, but in light of today’s developments, even another delay is in the cards. 

The Fed’s next monetary meeting will be held in two weeks time and today’s wild moves in the Treasury market confirmed that the outcome of the meeting is far from being certain. Short-dated Treasury yields declined sharply due to the bearish PMI and the renewed trade pessimism, and more and more analysts are calling for a 0.5% easing step. Although, according to the President, this month’s trade talks are still ‘on’, the odds of a deal ahead of the Fed’s decision are very slim and the global economy is still sending worrying signals, so a dovish surprise from the Central Bank is more likely

Technical Corner
The technical picture continues to be mixed, and due to today’s sell-off, the short-term trend remains bearish on Wall Street, while the long-term direction is still clearly positive. The major indices are all above their flat 200-day moving averages of 7,608 for the Nasdaq, 2,806 for the S&P 500, and 25,627 for the Dow. The benchmarks are still stuck below their 50-day moving averages of 2,944 for the S&P 500, 8,044 for the Nasdaq, and 26,566 for the Dow, and their all-time highs are still out of reach despite last week’s rally.

The utilities sector continued to shine today after a bullish August, closing well in the green in the face of the market-wide sell-off. Fundamentals remain highly favorable for the sector, as Treasury yields are still under pressure, demand for safe-havens is rising together with recession risks, and technical are also positive. The XLU sector ETF is well above both its rising 50- and 200-day moving averages, and it surged to yet another new all-time high today. The ETF rose by more than 5% in August, and it could be in for further gains in the coming months, should the uncertainty regarding the global economy persist. Stay tuned!




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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver