Daily Market Color

RISK OFF! Stocks Plummet, Treasurys Gain


Another Volatile Day

Equity markets experienced another forgettable trading session today as all three major indices gapped lower into the close.  The tech heavy Nasdaq fared the worst, dropping 4.4% (into correction territory) – the index’s largest daily decline since August 2011.  The S&P 500 (-3.09%) and DJIA (-2.41%) didn’t fare much better, as another round of below-expectation corporate earnings and continued geopolitical uncertainty soured investor sentiment.  Overall, October has been a terrible month for US stocks thus far, with the Nasdaq losing 11.7%, the S&P 500 falling 8.9% and the DJIA dropping 7.1% – erasing all gains from 2018.



Similar to yesterday’s session, US Treasurys rallied as risk assets fell out of favor.  Yields/swap rates declined 3-8bps across the curve, pushing the 10-year note yield down to 3.10%.  This afternoon Cleveland Federal Reserve President Loretta Mester echoed similar comments to those of her colleagues in stating that this recent weakness in the stock market does not alter the FOMC’s plans for gradual rate hikes.  “Of course we’re going to monitor this. But I still don’t believe the fundamentals of the economy are affected at this point” Mester explained. 



The Hawks of Canada

The Fed isn’t the only major central bank intent on raising interest rates in the near term.  Today the Bank of Canada made the decision to hike its benchmark interest rate by a quarter-point to 1.75%.  What is more, the policy statement released afterwards removed the language calling for a gradual approach to hiking rates going forward, foreshadowing the potential for a quicker pace of policy tightening than previously anticipated by market pundits.  Speaking at a press conference following the announcement, Bank of Canada Governor Stephen Poloz indicated that the shift in language was intended to provide the central bank with increased flexibility going forward.  “Markets seem to have settled on ‘gradual,’ meaning that we would only move every second meeting This is serving notice that it could be faster or it could be slower. And [markets] watch the same data we watch, so it won’t be that hard to make some [educated] guesses,” Poloz stated.  To date, Trump has not criticized the Bank of Canada’s rate policy actions.



Weakness in the Housing Market

A light day of key data releases was highlighted by the Commerce Department’s report on new home sales, which reflected a fourth consecutive month of declines.  New home sales were down 5.5% during September to a seasonally adjusted 553,000 pace – the slowest in the past two years.  A downward revision of 44k was also made to August’s figure (629k to 585k).  Declines were recorded in all major regions as inventories rose to a 7.1 month supply — the highest level since March 2011.


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