suffered the biggest declines, pushing the S&P MidCap 400 Index into negative territory for the year to date and the small-cap Russell 2000 Index into correction
territory, off more than 10% from its recent highs.
The Cboe Volatility Index (VIX) spiked and hit its highest level since late March on Thursday, while trading volumes reached their highest level in over eight months.
Industrials and materials stocks performed worst within the S&P 500, while utilities stocks fared best. High-valuation growth stocks underperformed slower-growing
value shares for much of the week but regained ground on Friday.
Rising Treasury bond yields, the deepening U.S. trade conflict with China, signs of weakness in the global economy, and other concerns continued to weigh on
sentiment during the week—but precisely why worries intensified Wednesday morning and set off a fury of selling was somewhat unclear.
Traders noted that the first spark may have been a relatively minor one—a report that China was cracking down on traveling citizens bringing undeclared designer
handbags and other goods into the country, which led to a tumble in the shares of luxury goods makers. This was soon followed by news of a rebound in U.S.
producer prices in September, which, despite being widely expected, appeared to raise fears about a jump in consumer inflation.
Traders noted that technical factors came into play later in the day Wednesday, particularly after the S&P 500 fell below its 100-day moving average and seemed to
accelerate program-based selling.
Selling out of stocks as an asset class as a whole rather than trading out of individual shares also appeared to play a role, with exchange-traded funds (ETFs)
responsible for over one-third of trading volumes.
After some hopeful signs at the opening, selling resumed Thursday, taking the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all below their 200-day
moving averages. Once again, systematic selling appeared to be at work, and ETF trading increased to 42% of total volumes.
According to The New York Times money exiting the market reflected “a level of anxiety about the market, especially given how far we’ve come.”
Investors received good news about inflation on Thursday, but it seemed to do little to improve sentiment. Consumer price inflation unexpectedly moderated in
September, reaching its lowest year-over-year rate (2.3%) since February.
The sell-off in equities seemed to push some investors into the bond market, and longer-term bond yields decreased for the week (bond prices and yields move in
opposite directions).
Municipal bonds underperformed Treasuries early in the week despite a lighter new issuance calendar. Munis rebounded on Thursday, however, as weakness in the
equity market and stability in Treasury yields helped draw investors back to the asset class.
Fixed income markets were closed Monday in observance of the Columbus Day holiday.
The investment-grade corporate bond market experienced some weakness, partly due to equity market declines weighing on sentiment. The primary calendar was
active, but volumes were light and well below expectations.
Credit spreads—or the additional yield offered over Treasuries with similar maturities—widened across most sectors, but investors seemed to jump in to take
advantage of the more attractive valuations, continuing a trend that had emerged over the past few weeks.
The high yield bond market was very quiet. Below investment-grade portfolios reported negative flows, including a sizable outflow from ETFs.
Traders observed that equity market weakness seemed to keep many investors on the sidelines, and the primary calendar was dormant. Bonds from energy sector
issuers traded lower as oil prices gave back some recent gains.
Source: G&T
