Markets closed in the red on Friday as chip stocks weighed on the markets after a U.S. Department of Commerce ruling in which five more Chinese companies were banned from doing business with the United States. Meanwhile, the three major benchmarks are on track for record breaking performance in June. For the day, however, the three major benchmarks ended in the red.
The Dow Jones Industrial Average (DJI) decreased 0.1%, to close at 26,719.13. The S&P 500 decreased 0.1% to close at 2,950.46. The tech-laden Nasdaq Composite Index closed at 8,031.71, losing 0.2%.
The fear-gauge CBOE Volatility Index (VIX) increased 5% to close at 15.49. Market volatility was higher than usual on Friday due to quadruple witching which marks the expiration of single-stock options and futures as well as index options and futures. Decliners outnumbered advancers on the NYSE by a 1.47-to-1 ratio. On Nasdaq, a 1.71-to-1 ratio favored declining issues.
How Did the Benchmarks Perform?
The Dow dipped 34 points to close in the red. Losses for the 30-stock index were broad. Shares of Disney DIS dipped 1.3% and weighed on the Dow. Disney has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 lost 3.7 points to end in negative territory. Of the 11 major sectors of the S&P 500, nine ended in the red, with real estate and consumer staples stocks leading the decliners. The Real Estate Select Sector SPDR Fund (XLRE) and Consumer Staples Select Sector SPDR Fund (XLP) decreased 1.9% and 1.1%, respectively on Friday.
Meanwhile, the U.S. Department of Commerce banned five more Chinese companies from buying components made in the United States. Higon, Chengdu Haiguang Integrated Circuit, Chengdu Haiguang Microelectronics Technology, Sugon and Wuxi Jiangnan Institute of Computing Technology were the five companies which the department banned.
Following such an announcement, shares of Micron Technology MU, Advanced Micro Devices AMD and Xilinx XLNX declined 2.6%, 3% and 2.3%, respectively and weighed on the overall semiconductor sector.
Meanwhile, the Nasdaq declined 19.6 points to also close in the red. Losses for the Nasdaq were broad-based. Further, shares of Amazon AMZN dipped 0.4% and weighed on the Nasdaq.
Fed Speaks
Minneapolis Fed President Neel Kashkari stated in an essay on the website of the bank that he advocated “for a 50-basis-point rate cut.” He is in favor of reducing the benchmark interest rates to the range of 1.75% - 2% from 2.25% - 2.5% currently. However, it should be noted that Kashkari is not a voting member of this year’s rate-setting Federal Open Market Committee.
Meanwhile, St. Louis Fed President James Bullard stated that he wanted the rates to be reduced this week against the backdrop of slow economic growth and weak inflation levels. Notably, Bullard was the only member who had voted against Fed’s unanimous decision on Jun 19 to hold interest rate steady.
Economic Data
On the economic data front, the National Association of Realtors stated that existing home sales for the month of May came in at 5.34 million units, higher than the consensus estimate of 5.27 million units.
Meanwhile, IHS Markit reported that its flash manufacturing purchasing managers index declined to 50.1 in June from 50.5 in the previous month. This marked the metric’s lowest level since September 2009.
On the other hand, IHS Markit’s flash services purchasing managers decreased to 50.7 in June from 50.9 in the previous month. This marked the metric’s lowest level since March 2016.
Weekly Roundup
For the week, the Dow, the S&P 500 and the Nasdaq rose 2.4%, 2.2% and 3%, respectively. Moreover, it is estimated that if the markets extend their month-to-date gains into the last week of this month, the Dow is on track to exhibit its strongest performance for June since 1938. Meanwhile, the S&P 500 and the Nasdaq are also expected to have best June since 1955 and 2000, respectively.
Fed kept the federal fund target rate unchanged while giving a clear indication that the central bank might cut rates at least once in this year. The European Central Bank (ECB) had also given a strong indication of a near-term rate cut a day earlier. Assurance of pursuing of accommodative monetary policies from two major central banks boosted investors’ confidence in equities.
The S&P 500 hit a new record-high on Jun 20 as investors’ appetite for risky assets like equities were bolstered by the Fed’s indication that a rate cut was likely this year. Moreover, geopolitical tensions with Iran resulted in a rally in energy stocks. Meanwhile, President Trump stated that he will meet his Chinese counterpart during the G-20 summit.
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