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Dow’s 800-point nosedive sets off recession alarms

If you take one message from Wednesday’s sell-off, make it this: once volatility gets revved up like it has, no single human voice is likely to calm it back down.

Consider that the S&P 500 has swung more than 1% now for 11 straight days, a cluster of chutes and ladders not seen since the December rout. The trade outlook improves, and the Dow jumps 370 points. The yield curve inverts, and it falls more than double that amount. All month long, an incessant back-and-forth has dominated.

“This is different because fundamentals are taking over. Slower growth and lower earnings,” said Donald Selkin, chief market strategist at Newbridge Securities. “There are too many negatives at this point. What Trump is saying and what the Fed is saying is no longer enough. Growth is slowing, what can you do about that? There’s not much you can do.”

The Dow lost more than 700 points after President Trump ordered tariffs on about $50 billion in Chinese goods.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, March 5, 2018. U.S. stocks turned higher and Treasuries erased gains as investors speculated that President Donald Trump's tough tariff talk won't translate into the most severe protectionist policies. Photographer: Michael Nagle/Bloomberg

All told, after the S&P 500’s rally on trade optimism, Wednesday’s reversal delivered a 4 percentage-point swing over two days, the largest since December, data compiled by Bloomberg show. A flurry of tweets by Trump implicating Powell in the carnage couldn’t stem the losses Wednesday.

As of 3:15 p.m. in New York, all 30 members of the Dow were lower, driving the benchmark down 800 points — and briefly below its 200-day moving average for a third time this month. The index is poised for the lowest close since June.

The S&P 500 fell below 2,850, a key level watched by chartists. Should the rout persist and the index break 2,822, its intraday low on Aug. 5, the next threshold under threat is its 200-day moving average, currently around 2,795.

Traders were forceful and unforgiving with their stock selling. For the second time in eight sessions, more than 90% of volume on the NYSE was for stocks trading in the red. The last time trading volume of falling securities spiked to 90% for two out of 10 sessions was in April 2018, data compiled by Bloomberg show.

Strategists continue to warn that a divided market cannot stand strong. Sundial Research’s Jason Goepfert highlighted Monday that a breadth indicator was pointing to a “historically split market,” as multiple stocks jumped to new 52-week highs while others sunk to 52-week lows.

Doug Ramsey, chief investment officer of Leuthold Weeden Capital Management, issued a similar warning Wednesday, writing in a note to clients that “the Advance/Decline work continues to disguise a very dangerous, underlying bifurcation of the market.”

Nearly all bested the broader market at roughly a third the price of the average fixed income product.
August 17

Wall Street’s fear gauge, the VIX, punched above 20 Wednesday for the fourth time in August’s 10 trading sessions. Rising as high as 22.7, the index sits comfortably above this year’s average of 15.8.

With the S&P 500 down more than 2%, Wednesday marked the 11th straight day that the benchmark notched an intraday move of greater than 1%.

Financial and energy companies led Wednesday’s slump as traders dumped shares whose earnings are seen most sensitive to economic growth. Down 12% from its July peak, the KBW Bank Index is mired in its biggest retreat since December.

Energy producers, already the worst performer among major S&P 500 industries, wiped out their 2019 gains. After falling in 12 of the past 15 days, the industry gauge is now down more than 1% for the year.

With an inverted yield curve stoking fears of recession, Wednesday’s sell-off sent a Goldman Sachs basket of economically-sensitive stocks down as much as 3.5%, more than a percent worse than its more defensive counterpart. That pushed a ratio of cyclical stocks versus their safer peers to the lowest in three years.