Wall Street closed lower on Tuesday to start September, historically the worst-performing month for U.S. stocks. Several economic data that were released yesterday were also weak. All three major stock indexes ended in negative territory.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.8% or 419.02 points to close at 52,766.88. However, 21 components of the 30-stock index ended in negative territory and nine ended in positive territory. The tech-heavy Nasdaq Composite finished at 26,099.77, slipping 1% or 271.12 points on weakness of artificial intelligence (AI) stocks.
The S&P 500 was down 0.7% to finish at 7,631.47. Nine out of 11 sectors of the broad-market index ended in negative territory while two finished in positive territory. The Communication Services Select Sector SPDR (XLC), the utilities Select Sector SPDR (XLU) and the Industrials Select Sector SPDR (XLI) fell 1.4%, 1.2% and 1.1%, respectively. On the other hand, the Energy Select Sector SPDR (XLE) climbed 2%.
The fear gauge CBOE Volatility Index (VIX) rose 9.5% to 16.34. A total of 15.67 billion shares were traded on Tuesday, higher than the last 20-session average of 15.60 billion. Decliners outnumbered advancers on the NYSE by a 2.19-to-1 ratio. On the Nasdaq, a 2.71-to-1 ratio favored declining issues.
Middle-East Geopolitical Conflicts
The U.S.-Iran war escalated from Aug 30, for the first time since late July. U.S. military hit two rocket launchers on Iran’s Larak Island. In retaliation, theTehran regime attacked U.S. bases in Jordan. On Aug 31, a tanker passing through the Strait of Hormuz was hit by three unknown projectiles. In retaliation. U.S. Central Command said that U.S. forces were attacking IRGC targets in Iran.
As a result, crude oil prices spiked. The price of the U.S. benchmark — the West Texas Intermediate crude oil future — rose 5.2% to settle at $90.22 per barrel. The price of the global benchmark — the Brent crude oil future — rose 4.6% to settle at $94.65 per barrel.
Consequently, stock prices of giant crude oil producers Chevron Corp.CVX and ExxonMobil Holdings Corp.XOM advanced 2.4% and 2.2%, respectively. The two companies currently carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hike in Government Bond Yields Globally
The yield on the benchmark 10-Year U.S. Treasury Yield rose 8 basis points to 4.804%, marking its highest level in 20 months. The yield on the long-term 30-Year U.S. Treasury Note rose 13 basis points to 5.28%. The yield on the short-term 2-Year U.S. Treasury Note rose 6 basis points to 4.4%.
Notably, on Aug 28, in his remarks at the Fed’s annual symposium of economic policies in Jackson Hole, WY, Chairman Kevin Warsh warned about the sticky inflation rate. Following the Fed Chair’s remark, the CME Fedwatch interest rate derivative tool shows a 68% probability that the central bank will raise the Fed funds rate by 25 basis points to the range of 3.75-4% in September.
Moreover, Japan’s benchmark 10-Year Treasury Note yield moved up 6 basis points to 3% for the first time since 1996. Short-term 2-Year Government bond yield touched a 31-year high of 1.81%. The yield on U.K. 10-year government Gilt rose 10 basis points to 5.2501%, the highest level since June 2008. The yield on long-term 30-Year Gilt also rose 10 basis points to 5.8909%, its highest level since March 1998. Additionally, yields on German Government bonds also moved higher.
Economic Data
Institute of Supply Management reported that the manufacturing purchasing managers’ index (PMI) came in at 54.6% in August, missing the Zacks Consensus Estimate of 55.2%. The metric for July was 55.6%. Any reading above 50% means expansion of manufacturing activities.
The new orders index was 53.7% in August compared with 56.7% in July. The production index fell to 58.3% in August compared with 58.5% in July. The employment index fell to 51.2% in August compared with 52.8% in July.
Construction spending fell by 0.5% in July compared with a decline of 0.1% in June. However, the Zacks Consensus Estimate was for an increase of 0.1%. Year over year, construction spending tumbled 3.8% in July.
The Department of Labor Statistics reported in its Job Openings and Labor Turnover Summary (JOLTS) that job openings in July were up 89,000 or 4.4% to 7.27 million. Total hiring was down 278,000 or 3.2% to 5.1 million, marking its lowest level since February.
Total separations were down 265,000 or 3.2% to 5.1 million. Within this, total quits fell 46,000 or 1.9% to 3.1 million. Total layoffs and discharges fell 22,000 or 1% to 1.7 million. Total other separations remained mostly unchanged at 350,000 in July.
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