S&P 500 drops below its 50-day moving average
The US indices all closed with losses this week, driven by rising interest rates as the downside momentum seen in the first half of August continued. This week’s selling led the S&P 500 to breach support at its 50-day moving average for the first time since March and take out support at the 4,400 level. Bank stocks were a particularly weak sector in the market after a warning from Fitch Ratings that it might be forced to downgrade the ratings of dozens of additional banks. The warning came just a week after Moody’s cut the ratings of ten small to mid-sized U.S. banks.
The movement in Treasuries was one of the biggest catalysts driving the stock market lower. The 10-yr note yield, reached its highest level since November 2007 on Thursday (4.31%). The 10-yr note yield is now up 29 basis points for the month with investors focusing on relatively positive economic data that continues to validate the no recession scenario that is likely to keep inflation above the Fed’s 2.0% goal and the Fed in a higher-for-longer mindset that includes the possibility of raising rates yet again.
China, also impacted stocks negatively this week. China reported weaker than expected retail sales, industrial production, and fixed asset investment data for July, along with another decline in home prices. In addition, property developer Evergrande filed for Chapter 15 bankruptcy protection in the U.S. The People’s Bank of China (PBOC), in response to weakening economic activity, lowered its one-year medium-term lending facility rate to 2.50% from 2.65% and lowered the seven-day reverse repurchase rate by ten basis points to 1.80%. The PBOC also reportedly instructed state banks to intensify their interventions in the foreign exchange market to support the yuan.
Regarding earnings reports, Dow components Home Depot (HD) and Cisco (CSCO) were met with positive reactions to their reports while fellow Dow component Walmart (WMT) logged a decline after its earnings report.