[BRIEFING.COM] The equity market took a sizable blow on Thursday as combative jawboning between the U.S. and North Korea weighed on investor sentiment for the third day in a row. Tech stocks led the retreat, sending the tech-heavy Nasdaq (-2.1%) and the S&P 500 (-1.5%) below their 50-day simple moving averages for the first time in a month. The Dow also finished solidly lower, dropping 0.9%.
President Trump dialed up his warning to North Korea on Thursday afternoon, saying Tuesday's 'fire and fury' comment--in which the president promised action against North Korea if it continues to threaten the United States--may not have been tough enough. Pyongyang has threatened a strike on the U.S. territory of Guam, laying out a plan in detail, in response to Mr. Trump's Tuesday statement.
The U.S.-North Korea spat got the bearish ball rolling on Tuesday and Wednesday, sending the S&P 500 lower by 0.2% and 0.1% on each day, respectively, but today's much larger decline points to a market that was most likely overdue for a pullback following yet another run to record highs.
Recent trends seem to validate this belief, including the underperformance of transports and small caps, which are seen as leading indicators, a rally in the Treasury market, and a lack of conviction among investors throughout a strong earnings season.
Today's risk-off sentiment was distinguishable in the sector standings as countercyclical groups largely outperformed their cyclical peers. In total, ten of eleven sectors settled in negative territory with the rate-sensitive utilities group (+0.3%) being the lone advancer as a rally in the Treasury market left rates lower across the curve; the benchmark 10-yr yield dropped three basis points to 2.21%.
The top-weighted technology sector (-2.2%) settled at the very bottom of the day's leaderboard. The sector's most influential component--Apple (AAPL 155.32, -5.11)--plunged 3.2% while chipmakers also showed notable weakness, sending the PHLX Semiconductor Index lower by 2.8%.
The heavily-weighted financial sector (-1.8%) also settled behind the broader market, as did the consumer discretionary group (-1.5%), which was weighed down by retailers in particular, evidenced by the 3.1% decrease in the SPDR S&P 500 Retail ETF (XRT 39.40, -1.24). Kohl's (KSS 39.50, -2.43) and Macy's (M 20.67, -2.36) led the retail retreat, dropping 5.8% and 10.3%, respectively, despite beating bottom-line estimates.
It's also worth pointing out that the CBOE Volatility Index (VIX 15.74, +4.63) surged 41.7% to a four-month high after drifting near an all-time low from mid-July to early August.
Reviewing Thursday's economic data, which included the July Producer Price Index and the weekly Initial Claims Report:
July producer prices came in at -0.1%, which is below the Briefing.com consensus of +0.2%. Core producer prices also declined 0.1% while the Briefing.com consensus expected an increase of 0.2%. The Producer Price Index (PPI) report for July was weaker than expected. The key takeaway from the report is that the downturn in producer prices will presumably keep a lid on consumer inflation expectations. The latest weekly initial jobless claims count totaled 244,000 while the Briefing.com consensus expected a reading of 240,000. Today's tally was above the revised prior week count of 241,000 (from 240,000). As for continuing claims, they declined to 1.951 million from the revised count of 1.967 million (from 1.968 million). There are no new takeaways from those data series, which remain at low levels reflective of a tight labor market.
On Friday, economic data will be limited to the July Consumer Price Index (Briefing.com consensus +0.2%), which will cross the wires at 8:30 ET.
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