Stocks were hit for big losses on Wednesday as the Dow dove 280 points or -2.22%, the S&P 500 fell -2.28%, the NASDAQ was hit for -2.33%, and the Russell 2000 plunged -3.22%.
The key to the session was the sudden shift in focus amongst traders. Although the vast majority of economic reports seen in May had come in below expectations, the fact that both the Chinese and Eurozone PMI’s, as well as the US ISM reports were all well below consensus brought the concept of economic weakness back into play.
As the uber-professional and generally staid analysts at Ned Davis Research described it on Wednesday, the ADP and ISM data presented “shockingly disappointing numbers from two major reports.” The summary of the day’s economic data went on to say, “the breadth and magnitude of the setbacks suggests this is more than just a temporary soft patch.”
The last statement really says it all. Up until today, the thinking on the street was that the weakness that had been seen during the April/May reports was both modest and temporary. However, one look at the ISM numbers for the U.S. and it quickly becomes clear that there could be a problem here from an economic growth standpoint.
In response, stocks were sold off hard from bell to bell, yields on government bonds plunged (the 10-year finished with a yield of 2.966% - the first sub-3% yield this year), and the economically sensitive high yield bonds were punished.
From a chart perspective, the day’s thrashing once again didn’t really have a huge impact. Although the S&P did dive back into its downward trend channel, there were no major breakdowns in terms of trendlines or support zones. And while the bears will suggest that this type of “trend day” will lead to more downside action, the charts are not “broken” at this stage of the game.
Have a pleasant evening.
S&P 500 - Intraday
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