NEW YORK (Reuters) - U.S. benchmark stock indexes fell sharply on Monday, undermined by weakness in the technology sector while a growing trade dispute with China has investors pulling back on concerns over economic growth.
The S&P 500 index .SPX broke below the significant 200-day moving average for the first time since Feb. 9 and a close below would be the first since June 27, 2016.
Amazon AMZN.O, led the decline in the technology-heavy so-called "FANG" group of companies. The online retailing giant dropped nearly 5 percent after President Donald Trump launched his latest attack over the pricing of the retailer's deliveries through the U.S. postal system and promised unspecified changes.
RICK MECKLER, PRESIDENT, LIBERTYVIEW CAPITAL MANAGEMENT, JERSEY CITY, NEW JERSEY:
“I think it’s really the lack of clarity on the U.S. trade policy combined with nervousness over the selloff in the big tech names. The president continues to attack Amazon. Facebook hasn’t done a great job of explaining the problems they’ve had. The combination of the two, a reassessment of technology as well as what the trade issues might mean for exporting U.S. companies are hitting the market at the same time.”
“The next big test for this market will be the next earnings cycle. In this pause, there’s a lot of back-and-forth trading that’s probably not as based on fundamentals.”
DOUG KASS, PRESIDENT, SEABREEZE PARTNERS MANAGEMENT, PALM BEACH, FLORIDA:
“I have argued that the President’s behavior is now beginning to impact the capital markets - both the averages and individual equities. Acting upon his impulses, growing more isolated and becoming more unhinged. In my view, this is market unfriendly and one of the reasons the markets continue to act so poorly.
“Past is indeed prologue as Trump’s White House is now replicating The Trump Organization - both are built on a small body of personnel with policy developed on “gut instincts” - and without thoughtful planning. We witnessed this during the campaign and we now see it in the government of the U.S.”
ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY FBR, NEW YORK:
“The folks that look at this on a technical basis will be keeping close eye on the 200-day moving average. It’s a rising 200-day moving average, whereas the 50-day moving average is rolling over on the S&P.
“As we look at that, it’s going to be important for a lot of reasons because the people that care about it all target the same levels. That’s why we accelerated - we broke the 200-day moving average on the S&P of 2589, at 2581 (on the S&P.) There is a lot of space below that.”
“Unfortunately, all the guys that are targeting the same thing had their (stop-loss sell orders) in and that’s probably what that last blast was.”
RYAN LARSON, HEAD OF U.S. EQUITY TRADING, RBC GLOBAL ASSET MANAGEMENT, CHICAGO:
“A lot of what you’re seeing in the last hour or so has been technically driven. Failure to hold the 200 day has put downward pressure on the market. Outside of that, looking to the last couple of sessions and weeks the market continues to be very technical.”
“As key levels are breached or held short term participants are responding. The fundamental picture hasn’t changed.”
“The market’s been very concerned about U.S. trade policy, probably more supportive of fear than optimism.”
“Sometimes it’s as simple as follow the leader. One sells, they all sell and questions are asked later. If there was a specific catalyst today you could probably point to China and trade policy but I think those are taking a back seat to technical indicators.”
“As fundamentals tend to take a back seat technicals are a few of the indicators that people hold on to in period of extreme volatility.”
“What else is becoming painfully clear is the market’s need to retest the February lows. Again, in a technically-driven environment, the charts are most telling of future (short-term) direction.”
“The longer the action under the 200-day moving average (2589) is suggestive of a retest of the 2532 low from February. Lack of liquidity is exacerbating this move; as it did in February as well.”
RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS:
“Rough day. It’s crazy, it’s like the confluence of every bad news story you could have all at the same time, it’s just crazy. (China retaliation) is the biggest component but clearly the FANG stocks continue to deteriorate and they have been the market leaders for so long.
“You obviously have more turmoil within the Trump administration but I do think it is the China retaliation, which ultimately we all thought was coming, that is probably the biggest piece of it. But there is just not enough good news out there to offset any of that. We might get some good news in about two weeks when we start earnings season. The question is what is going to happen in the next couple of weeks, that is what I am most concerned about.”
“It doesn’t look good, technically you can’t be real happy with where this S&P is at right now. If we can close above it at the end of the day that would be great but this definitely is questionable. We have been pounding on the 200-day for the last six sessions and now we’ve broken through. Really all we can go on at this point is just technicals, there is probably a little bit of support maybe around the 2,537 level but then below that we may be looking at 2,5000 or so again which is pretty scary.
“The tough part is even if we close above it today, that will be an encouraging thing but what we have seen about these patterns in the past is you get a close above it at the end of the day everybody breathes a sigh of relief and then it gaps down at the open tomorrow. That is what I am worried about. I would be very hesitant to say that even if we do close above it, I wouldn’t be willing to wave the all clear flag at that point. I would be just as uncomfortable as if we closed below it, quite frankly.”
PARESH UPADHYAYA, DIRECTOR OF CURRENCY STRATEGY, AMUNDI PIONEER ASSET MANAGEMENT, BOSTON:
“We are seeing a safe-haven bid into Treasuries. With the dollar, it has moved up but the yen and the Swiss franc are the real winners. It’s an equity induced sell-off triggered by trade concerns. Those concerns raise worries about global growth.
“There’s going more of a risk premium built in for the euro as well as other export-oriented currencies like the Canadian, Australian and New Zealand dollars.
“When you look at overall positioning, we have seen a dramatic reduction in long dollar bets and it has settled into a sideway pattern. The Trump’s administration’s trade policy clearly has muddied the water. Investors want to see how things shake out before jumping back in. We are seeing a cyclical weakening in the dollar. A lot will dependent on the twin U.S. deficits going forward.”
TOM DI GALOMA, MANAGING DIRECTOR, SEAPORT GLOBAL HOLDINGS, NEW YORK:
“There are a lot of people off in Europe and this equity market’s getting pushed around, that is one of the issues. The Chinese tariffs came into effect today, that’s another factor.
“Another big factor is Trump further going after the tech sector, namely Amazon. I think it casts a shadow effectively around all of the tech sector, who’s next is the feeling.”
“Equities just do not trade well, we just broke the 200 day moving average, once you get below that this market is probably not going to recover for a while. It might attempt to recover. If you close below that today that will put a significant sell side into the market. Breaking the 200 day moving average is just a very, very big level.
“I think people are getting really nervous about equities and that is going to put a bid into bonds. I think there are a lot of reasons to be nervous on equities, mainly inflation coming back. The ISM number brought back that prices are higher. I think the equity market is running out of steam on the upside.”
NICHOLAS COLAS, CO-FOUNDER, DATATREK RESEARCH, NEW YORK:
“I think this is still primarily a tech-led selloff and what we’ve learned over the past two weeks is just how overweight investors were in technology. Now there is a fundamental reset on how much tech exposure investors are willing to bear. It’s a tech pullback. (I don’t think it is) primarily related to China. The tariff war has been a concern for a couple of weeks. The response was probably more muted than most thought. I think this is a follow through from last week’s tech selloff. Tech has been such an outperformer for so many years. I don’t think today is the end of it.”
The significance of breaching the 200 day moving average ” depends on where we close. Intraday breaks of major levels are acceptable if you close at or above (the level). In the short term it doesn’t look good either way because the newsflow doesn’t feel like it has hit its nadir.”
“(We could see a) 10 percent pullback, a full blown correction from the end of 2017. We already had it from the highs. Technically people like to count from the highs, but could get full blown 10 percent pullback from last year’s close.”
“People are selling because everyone is selling (in tech). There were a lot of overweights. As an active manager if all you did was overweight tech you outperformed for the last 5 years. It is 2/3 momentum and 1/3 fundamental (selling) and then you overlay the technical factor – it’s a perfect storm. I view today as a follow through from last week. Today’s the first day of the new quarter, there may have been some false hope on Friday.”
THOMAS MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA, GEORGIA:
“It’s the same type of things that people have been grappling with for the last couple of months. Trade is still an issue - the news from China was not new and was not bearish really, but it is an ongoing uncertainty. What you’re seeing in the market is a change in leadership, it happened at the end of last month where you had tech starting to do not so well. You had growth in general not doing well and value doing better, and that’s happening again today as market participants are thinking ‘Is this the change in leadership and what should we do about it?’”
SCOTT WREN, SENIOR GLOBAL EQUITY STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST. LOUIS:
“We were only 30 S&P points at open from the 200-day moving average and that thing is just going to act like a magnet.”
“We pushed through there and ran a bunch of stops and now we’re trying to figure out if we’re going to hold here or not. I wouldn’t think there will be a lot of follow through on the downside. This trade thing, yeah, in our opinion the chance of all-out trade war is pretty slim and the announcements out of China are pretty minimal stuff, in reality.”
PETER KENNY, SENIOR MARKET STRATEGIST, GLOBAL MARKETS ADVISORY GROUP, NEW YORK:
“We’re at the cusp of a fairly significant reevaluation across all market sectors, but largely focused on large cap technology. This selloff that we’re seeing in large cap technology is affecting the broader market, but as often happens when you see significant moves, that are correlated across indices and verticals, there are multiple reasons for the selloff.”
“When this started on February 2nd, we’ve had a re-test of a likely fail, which means that going into earnings season, markets and equities generally speaking will likely be at the lowest point in terms of valuation that they’ve been in some time, which should lead to some comfort, frankly, as odd as that may sound. So earnings season will bring an alternative to what we’ve seen over the last four to six quarters.”
DAVID KOTOK, CHAIRMAN AND CHIEF INVESTMENT OFFICER, CUMBERLAND ADVISORS, SARASOTA, FLORIDA:
“This is a Donald Trump market reaction. The president and his behavior and his tariff trade barrier policy and his bellicose bullying are responsible for the stock market selloff. The Chinese are matching the US one-for-one and we are now engaged in a very dangerous game.”
“The man attacks viciously, so he has attacked Jeff Bezos and Amazon, he’s attacked one of the two largest trading partners of the US, and his White House is in full disarray.”
“Markets have broken down, so the momentum optimism has been broken; how much farther they go down remains to be seen. I’m taking advantage of these markets and am heavily overweighted financials and banks. I didn’t buy today, we’re in free-fall, but I might tomorrow.”
“We may get to a 20 percent down bear market before this runs its course. The question is when do you take positions and what is your time horizon? And mine is 24 months and I believe we don’t get a recession, and I want to be a buyer when markets are ugly and in weakness.”
FRITZ FOLTS, CHIEF INVESTMENT STRATEGIST, 3EDGE ASSET MANAGEMENT LP, BOSTON:
“We’ve been lightening up (equity exposure). For us it’s seeing the back-up in short yields. That’s just one of the things when we run our models we pay a lot of attention to. And credit spreads widening out. Those are two things we just take very seriously and we broke below the 200-day moving average today.”
“2017 has left the building and I feel like it’s hard to get use to an environment that could be dramatically different from what we’ve been in for a while, and people are just trying to get their feet under themselves.”
STOCKS: The Dow Jones Industrial Average .DJI fell 474.76 points, or 1.97 percent, to 23,628.35, the S&P 500 .SPX lost 56.76 points, or 2.15 percent, to 2,584.11 and the Nasdaq Composite .IXIC dropped 167.31 points, or 2.37 percent, to 6,896.13.
TREASURIES: Benchmark 10-year notes US10YT=RR last fell 1/32 in price to yield 2.748 percent, from 2.744 percent late on Thursday.
The 30-year bond US30YT=RR last fell 8/32 in price to yield 2.984 percent, from 2.971 percent late on Thursday.
CURRENCIES: The dollar index .DXY fell 0.04 percent, with the euro EUR= down 0.25 percent to $1.229. The Japanese yen strengthened 0.17 percent versus the greenback at 106.11 per dollar, while Sterling GBP= was last trading at $1.4031, up 0.11 percent on the day.
Reporting By Wall Street team; Editing by Daniel Bases
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