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Stock market loses over 1%, while yields decline further
12-Aug-19 16:15 ET
Dow -391.00 at 25896.44, Nasdaq -95.73 at 7863.42, S&P -36.21 at 2882.44

https://www.briefing.com/investor/markets/stock-market-update/2019/8/12/stock-market-loses-over-1-while-yields-decline-further.htm

[BRIEFING.COM] The stock market fell more than 1% on Monday, as uncertainties about the global economy continued to push investors away from risk assets and into safe-haven assets like U.S. Treasuries and gold. The S&P 500 fell 1.2%, which was comparable to the declines in the Nasdaq Composite (-1.2%) and Russell 2000 (-1.2%). The Dow Jones Industrial Average lost 1.5%.

U.S. corporate and economic news was sparse on Monday, which helped attention focus on the government protests in Hong Kong, the political instability in Italy and Argentina, and the lack of improvement in U.S.-China trade relations. Economists from Goldman Sachs added to the sour mood, stating that they are not expecting a U.S.-China trade deal before the 2020 presidential election.

In other words, Monday featured plenty of negative-minded speculation, although it was understandable given the amount of negative developments around the world and the lack of good news. Perhaps the most startling development in the capital markets was the persistent decline, and compression, in U.S. Treasury yields.

This compression in yields not only hit investor sentiment but was also affected the S&P 500 financials sector (-1.9%), which led all 11 S&P 500 sectors in losses. Banks typically rely on healthy net interest margins to boost profit and facilitate lending activity. The other rate-sensitive sectors -- real estate (-0.3%) and utilities (-0.3%) -- outperformed but still finished lower.

The spread between the 2-yr and 10-yr yields narrowed to six basis points, as demand for longer-dated tenors continued to climb amid growth concerns. The 2-yr yield fell five basis points to 1.58%, and the 10-yr yield fell ten basis points to 1.64%. The U.S. Dollar Index declined 0.1% to 97.43.

An inversion of the 2-10 spread is widely viewed as a recession indicator, although an inversion does not necessarily predict one.

In commodities, gold futures settled 0.5%, or $7.00, higher at $1505.30/oz to extend its yearly advance to 14.7%. For comparison, the S&P 500 is up 15.0% this year. Interestingly, WTI crude settled 0.4%, or $0.20, higher to $54.81/bbl despite the economic growth concerns.

Separately, shares of Amgen (AMGN 205.78, +9.53, +4.9%) saw continued strength after it won a patent case for Enbrel on Friday.

Monday's economic data was limited to the Treasury Budget for July:

The Treasury Budget for July showed a deficit of $119.70 bln (Briefing.com consensus -$100.00 bln) versus a deficit of $76.87 bln for the same period one year ago. The Treasury Budget is not seasonally adjusted, so the July deficit cannot be compared to the $8.50 bln deficit in June.
The fiscal year-to-date deficit is $866.81 bln versus a deficit of $683.96 bln in the same period a year ago. The budget deficit over the last 12 months is $961.8 bln, versus $919 bln for the 12 months ending in June.

Looking ahead, investors will receive the Consumer Price Index for July on Tuesday.

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