[Chart courtesy of MarketWatch.com]
The U.S. equity markets extended yesterday’s selloff to close decisively lower, the most since June as forecasts from Cisco Systems Inc. and Wal-Mart Stores Inc. disappointed while a large dose of mixed domestic data added to investor worries that the Federal Reserve may begin tapering in the near future.
About 6.6 billion shares exchanged hands on U.S. exchanges today, 4.5 percent above the three-month average, while The CBOE Volatility index rose nearly 12 percent. Treasury yields rose to the highest levels in two years.
All 10 major industries in the S&P 500 retreated, with seven of ten groups posting losses larger than 1.0% while, energy (-0.7%), materials (-0.8%), and telecom services (-0.9%) outperformed. Technology and consumer-discretionary shares dropped more than 1.7 percent after Wal-Mart’s shares fell on a surprise decline in quarterly same-store sales and Cisco Systems shares slipped one day after the network equipment maker announced it was cutting 4,000 jobs.
Adding to the sell-off, data showed initial claims for unemployment insurance fell 15,000 last week to 320,000, the fewest since October 2007 and below the consensus of 335,000. The four-week average of claims fell 4,000 to 332,000, the lowest level since November 2007. The sustained downward trend indicates labor market conditions continue to improve, which should support consumer sentiment and spending going forward.
Meanwhile, the Consumer Price Index (CPI) rose 0.2% in July, in line with the consensus. The core CPI also rose 0.2%, matching the consensus. On a y/y basis, CPI is up 2.0%, while the core has advanced 1.7%, near the Fed’s longer-term target of 2.0%.
This should allow the Fed to taper its asset purchases later this year, without fear of deflation. In manufacturing news, industrial production was flat in July, below the 0.3% increase expected by economists.
The Empire Manufacturing Index, a measure of manufacturing in the New York region, showed activity growth unexpectedly decelerated for August. Elsewhere, the Philly Fed Manufacturing Index showed growth in mid-Atlantic manufacturing activity for August also unexpectedly declined, falling to 9.3, well short what was forecasted by economists.
Our Trend Tracking Indexes (TTIs) hit the skids as well with the Domestic TTI sliding to +2.06% while the International TTI retreated to +6.25%.