by Pinchas Cohen
Yesterday, US stocks almost bucked the global sell-off, but not quite. Ironically the Technology sector, which had been responsible for the earlier worldwide sell-off gained in the US—offsetting the slide in Consumer and Financial shares. Though it saw some intraday gains, the S&P 500 still ended lower on the day, albeit by less than a point. Small as the loss was, it nevertheless extended the benchmark index's declines for a fourth day, the longest down-leg since March.
The current sell-off has spawned the market narrative that investors are rotating out of the technology sector because:
Putting paid to that however: on Tuesday the decline was pervasive and included both defensive and growth stocks. Indeed, that descent was led by Utilities, which fell 1.27 percent. Technology, currently being blamed for the sell-off, was in fact the only sector in the green, even if only because of a 0.03 percent advance.
Yesterday, Technology outperformed again, gaining 0.64 percent. Additionally, Financials—the sector one would presume would move higher on the possibility of tax cuts—fell 0.35 percent even as the benchmark index itself headed lower. Yesterday's decline extended the losses for a fourth day, painting a picture of an overall market correction rather than a benign sector rotation. Our conclusion: this might just be a broader profit-taking effort as we head into the year end.
Stocks in Asia were mixed this morning, easing the overall selling. In Japan, both the Nikkei 225 and TOPIX pared most of yesterday’s losses, while the TOPIX closed above the real body of yesterday’s candle.
In a reversal of recent activity, Hong Kong’s Hang Seng rebounded, while the Shanghai Composite fell. Over the past few days the current sell-off was harder on Hong Kong shares than on mainland equities, after regulations threatened to limit the flow of funds that were responsible for the Hang Seng’s decade highs. Interestingly, no change has been reported on Chinese regulators’ trajectory for limiting the flow of funds but they are actively working to cool down stocks in Hong Kong, according to the Wall Street Journal. The MSCI Asia Pacific Index fell this morning, for an eighth straight day.
In contrast to Asia, European markets picked up steam, eking out a gain after a two day drop. While basic resource stocks extended declines, technology, as in the US, and travel-related equities led the Stoxx Europe 600 in a rebound.
The euro was little changed as investors awaited today's release of economic growth data for the region.
Treasuries, including the benchmark 10-year note, steadied as progress by Republican lawmakers continued toward negotiating a final US tax cut bill, after US sovereign bonds rose yesterday ahead of a potential government shutdown at the end of the week.
West Texas oil traded near $56 a barrel after falling the most in two months on Wednesday as U.S. gasoline stockpiles expanded more than expected. The rising dollar pushed the price of oil down as well.
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