The S&P 500 was lower by 2.50% and the Dow was off 2.34%. Stocks sold off for the second straight day following Fed Chairman Bernanke’s FOMC presentation. Both stocks and fixed income securities sold off. The decline in bonds increased the yield in 10-year Treasuries by 0.25% over the past two days. Interest rate sensitive sectors of the equity market were hit the hardest today. Homebuilders and REIT’s were hit particularly hard.
European trading overnight set a negative tone here from the open. The Dow Jones Euro Stoxx index fell 3.6%. Concerns over slowing growth in China and a reduction in stimulus from central bankers in Europe put stocks under pressure.
Commodities sold off sharply with precious metals, crude, copper, and natural gas all trading lower. Gold closed lower by more than 5%.
Some economic numbers released today were well ahead of expectations. These positive data points could not offset the broad-based heavy selling. U.S. existing home sales increased by 4.2% in May to 5.18 million on a seasonally adjusted annual rate. Existing homes sales were up 9% on a seasonally adjusted annual rate for the past 6 months. The Philadelphia Fed survey jumped 17.7 points to 12.5 in June with strong underlying details. The high estimate for the Philly Fed number was 5.0, so the announced number was well in excess of all estimates.
Elevated Treasury yields have contributed to selling in high-yielding, defensively oriented sectors. This put the consumer staples sector under pressure. The global franchises that pay a high dividend, those issues that were in favor earlier in the year, sold off sharply as competition from bonds becomes more intense with the increasing yields. The other counter cyclical groups—telecom, healthcare, and utilities—were all down more than 2% on the day.
Even though home sales data came in above expectations, homebuilding stocks were sold aggressively today. With the rise in rates, mortgages will be tougher to get and the stocks suffered today.
Source: PFS Group
