Stock Market News for March 1, 2018

Benchmarks declined for the second straight trading day on Wednesday after three consecutive days of gains. All the three key U.S. indexes closed in the red on the final trading day of February following continuing concerns over a likely increase in the pace of rate hikes following Fed Chair Jerome Powell’s recent comments.

For the month, both the Dow and S&P 500 registered their biggest monthly declines since January 2016. Additionally, both the two indexes ended their 10-month long streak of gains, the longest such feat since 1959. Further, the Nasdaq posted its first monthly decline in eight months. The tech-heavy index also registered its worst monthly performance since October 2016.

How the Benchmarks Fared?

The Dow Jones Industrial Average (DJI) decreased 1.5%, or 383.89 points, to close at 25,029.20. The S&P 500 fell 1.1% to close at 2,713.83. The tech-laden Nasdaq Composite Index closed at 7,273.01, losing 0.8%. The fear-gauge CBOE Volatility Index (VIX) increased 9.5% to close at 20.34. A total of 8.1 billion shares were traded on Wednesday, considerably lower than the last 20-session average of 8.4 billion shares. Decliners outnumbered advancers on the NYSE by a 2.55-to-1 ratio. On Nasdaq, a 2.65-to-1 ratio favored declining issues.

Markets Stumbles as Rate Hike Fears Loom

In his first appearance on Capitol Hill, Fed Chairman Jerome Powell presented an encouraging picture of the U.S economy. Powell expressed confidence that the coming few years will be “good years for the economy”. Consequently, traders predicted that an upbeat economy will fuel inflation further and prompt the Fed to step in and hike rates at a faster pace. 

Many of them are already predicting the Fed will increase rates four times instead of three. According to data from the CME Group, odds of four rate hikes by year-end rose to around 35% on Wednesday, higher than the week ago figure of 28%.

All the key U.S. indexes declined for second straight day, as investors remained wary of an increase in the pace of rate hikes. The Dow registered a slump of more than 380 points. For the S&P 500 index, all the 11 sectors finished in the red with the energy sector emerging as the biggest drag on the S&P 500.

Slump in inventories Pull Oil Stocks Lower

Oil prices moved south following an increase in weekly U.S. crude stockpiles. The Energy Information Agency reported that crude inventories for the week ending Feb 23 increased by 3 million barrels. Following this development, both WTI and Brent crude declined 2.2% and 1.3% to $61.64 per barrel and $65.78 a barrel, respectively.

Decline in oil prices led the Energy Select Sector SPDR (XLE) to decline 2.3%. Dow components Exxon Mobil Corporation XOM and Chevron Corporation CVX decreased 2.3% and 1.5%, respectively. Both the oil giants have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Homebuilder Stocks Slump Following Weak Home Sales

The National Association of Realtors (NAR) reported that the Pending Home Sales Index decreased 4.7% from December to 104.6 in January. The index is down 3.8% year-over-year, its worst since October 2014. Decline in pending home sales led the SPDR S&P Homebuilders (XHB) to fall 2.3%. One of its key holdings, Lowe's Companies, Inc. LOW declined 6.5%. Lowe's reported mixed fiscal fourth-quarter earnings results. (Read More)

Separately, U.S. GDP increased at a seasonally adjusted annual rate of 2.5% in the final three months of 2017 as per the “second” estimate released by the Bureau of Economic Analysis. The figure was in line with the consensus estimate. This represents a decline from the third quarter’s pace of 3.2%. Consumer spending increased at 3.8%, the sharpest pace recorded since the fourth quarter of 2014.

Monthly Roundup

For the month, the Dow, the S&P 500 and the Nasdaq decreased 4.3%, 3.9% and 1.9%, respectively. Earlier in February, all the key indexes declined by more than 10% from the all-time highs achieved on Jan 26 to enter correction territory. Markets suffered huge losses during the month following concerns over the decline in attractiveness of equities compared to bonds.

Rising bond yields has diminished the appeal of stocks, especially with valuations hovering at historically high levels. Tighter labor market, strong wage growth and prospects of rise in inflation together indicated a rate hike could take place as early as the Fed’s next policy meeting in March, which in turn weighed on investor sentiment.

However, on the last trading day of February the Dow, S&P 500 and Nasdaq are only 6%, 5.5% and 3.1% short of their all-time highs. This was mainly because the month also witnessed some positives. President Trump signed into law a bipartisan budget deal that will provide a massive spending boost to the Pentagon and U.S. infrastructure. This in turn curbed some of the monthly losses.

Stocks That Made Headline

Big 5 Falls 8% Despite Narrower-Than-Expected Q4 Loss

Big 5 Sporting Goods Corporation BGFV posted narrower-than-expected loss in the fourth quarter. (Read More)

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Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
 
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