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What’s moving markets today: October 2, 2019

Here's how the U.S. can avoid a recession
02:13

What we covered here

  • Stocks finished at a 5-week low.
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Stocks finish at 5-week low

US stocks closed lower on Wednesday, finishing at their lowest level since August 23.

The Dow finished 494 points, or 1.9%, lower. At its session low, the index was down nearly 600 points, falling below 26,000 for the first time in a month. Only one Dow stock ended the day higher: Johnson & Johnson (JNJ). The shares finished 1.6% higher.

The S&P 500 dropped 1.8%.

The Nasdaq Composite closed down 1.5%.

The stock selloff began Tuesday, following a weak manufacturing report. Today markets turned lower on worse-than-expected private payrolls, concerns about Friday’s jobs report and a lack of good news to counterweigh the soured sentiment.

Treasury yields tumble on growth fears

Investors are once again hiding out in boring bonds.

The 10-year Treasury yield dropped below 1.59% on Wednesday afternoon as recession fears return to Wall Street.

The slide in bond yields is a sign of soaring demand for safe haven assets like Treasuries as US stocks fall sharply. The Dow has lost about 800 points, or 3% since Monday’s close.

The spark for the rush into bonds was Tuesday’s dreadful manufacturing report, which showed America’s factories suffered their worst month since the end of the Great Recession.

The 10-year Treasury rate, which moves in the opposite direction of the price, stood at 1.75% shortly before that alarming manufacturing report was released. It slumped to as low as 1.58% on Wednesday as US stocks tumbled.

Recession fears drove a similar push into bonds last month. The 10-year Treasury yield plunged below 1.43% in early September, flirting with record lows.

IP-Nooo! Unicorns struggling on Wall Street

Can Airbnb resuscitate the IPO market? Perhaps. But it won’t be until 2020 at the earliest – and the company is likely to do a direct listing like Slack (WORK) and Spotify (SPOT) instead of a traditional initial public offering.

I talked with Alison Kosik about that on today’s “Markets Now” show, telling her that it looks like Airbnb wants to avoid the typical “dog and pony show” associated with companies hiring investment bankers to sell their story to big mutual funds, hedge funds and other investors.

A successful listing for Aribnb would be welcome news for so-called unicorn startups. Uber (UBER), Lyft (LYFT) and Peloton (PTON) have struggled since they began trading. WeWork and talent agency Endeavor were forced to scrap their deals. There have been some success stories, such as Beyond Meat (BYND) and Zoom Video (ZM), but those have been the exception of late.

Investors are now a lot more skeptical of IPOs – especially those still bleeding red ink.

Dow slumps nearly 600 points at the day's low point

As stock losses accelerated, the Dow dropped nearly 600 points before bouncing back again slightly.

The index was last down 2%, or 529 points.

Johnson & Johnson (JNJ) is the only Dow stock in the green, up 1.2%, according to Refintiv.

The S&P 500meanwhile, was 1.9% lower, and the Nasdaq Composite traded down 1.7%.

Falling home prices are good news for this builder

Miami-based home builder Lennar (LEN) was one of a little more than two dozen stocks in the S&P 500 to escape Wednesday’s market rout as of midday. Shares were up 3%.

The company reported better-than-expected earnings and sales. And CEOexecutive chairman art Miller said he still sees good times ahead for housing thanks to a drop in home prices.

Miller said lower interest rates and a still-solid job market obviously helps too, but he specifically points out that “attractive pricing…motivated consumers.”

Lennar said the average sale price of homes delivered in the third quarter was $394,000, down from $415,000 in the third quarter of 2018. And that drop was apparently enough to entice more buyers. The company reported an increase in both deliveries and new orders in every region of the US where it operates.

Of course, it remains to be seen whether consumers will maintain this confidence in light of trade war worries. But for now, the housing market remains a bastion of strength in the economy.

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NY Fed: QE could be used to fight the next recession

The Federal Reserve doesn’t have much room to lower interest rates if the next recession strikes soon. That could mean a return of unorthodox steps such as the Fed’s financial crisis bond-buying program, known as quantitative easing.

John Williams, the president of the New York Fed, said on Wednesday that he has “confidence” the central bank could effectively use QE again, should it be necessary.

The Fed turned to QE after it dropped interest rates to near-zero in 2008. The purchases of Treasuries and mortgage securities lifted the Fed’s balance sheet above $4.5 trillion, compared with below $1 trillion in 2007.

Speaking at a University of San Diego event, Williams credited QE with keeping mortgage rates and corporate borrowing costs low as well as boosting financial conditions would lead to runaway inflation. That didn’t pan out.

But some say QE did help deepen America’s wealth inequality by boosting asset prices, which disproportionately benefits more affluent families.

But Williams doesn’t sound concerned about the unintended consequences.

“When we did forward guidance and QE back in the day we didn’t have a lot of experience,” Williams said. “We’ve learned that some of the concerns about the costs and potential negative effects ended up being much smaller than some of the fears.”

The US economy will avoid recession, investor says

Even though US stocks are down sharply Wednesday, investors should remember the big picture, said Krishna Memani, vice chairman of investments at Invesco, on the CNN Business digital live show Markets Now.

He said the US economy is strong enough to avoid recession. The unemployment rate remains low and consumer spending is healthy, he said. And, he points out, the American consumer is the biggest contributor for GDP growth.

That said, given the weakness in recent economic data, “the Fed may cut rates again,” Memani said.

The Invesco executive believes the downward trend in the data is bottoming out, and the effects of Fed’s easing in recent months will improve things in the near term.

Assuming that economic data and growth stabilize, along with lower interest rates, “there’s a good case for the markets to go higher,” Memani said.

A trade deal would also be very good for the market, he added, as so far the trade war has “made a bad situation worse.” And as for Friday’s jobs numbers, “I think they’ll come in around expectations,” he said.

It's not just one factor that's driving the market lower, trader says

US stock indexes are sharply lower Wednesday, but the poor performance can’t just be blamed on one thing.

“I think there are a few things that have gotten us to this point,” Jon Corpina, senior managing partner at Meridian Equity Partners, told Alison Kosic on the CNN Business digital live show Markets Now.

Prior to this week, risks like Brexit, US-China trade tariffs, the geopolitical situation around Iran, Saudi Arabia’s oil production and the impeachment inquiry into President Donald Trump have been have been on investors’ minds.

Tuesday’s weaker-than-0expected manufacturing data was just “the last ingredient in the recipe” to get investors to understand that there many things that can move the market, Corpina said.

Donald Trump says the market is falling because of impeachment. Experts say it's about manufacturing

Stocks are deep into the red today, with the Dow shedding more than 500 points at its lowest point.

Analysts and market participants believe the weakness in the market is related to Tuesday’s weaker-than-expected manufacturing report, which showed that the sector contracted for a second month in a row in September. The monthly index dropped to its lowest since June 2009.

But one person who doesn’t agree is President Donald Trump, who said on Twitter that the impeachment inquiry was weighing on the market.

Stocks have widely shrugged off impeachment, because most market participants assume that the president won’t be removed from office.

Today, “the primary driver of what we’re seeing the last few days is economic numbers,” said Keith Lerner, chief market strategist at SunTrust.

The ongoing trade war with China and slowing global growth are also weighing on the market. It’s hurting business executives’ confidence, too.

“We really need to see at least a truce or not any further escalation. Otherwise that would be a big risk,” Lerner said.

Dow plummets more than 500 points

The Dow continues to drop, falling more than 500 points.

The index was last down nearly 2%, or 525 points.

The S&P 500 fell 1.9%, while the Nasdaq Composite is down 1.8%.

Oil prices slip after inventories report

US oil prices slipped after the Energy Information Agency released weekly petroleum inventory data.

Crude stockpiles increased by 3.1 million barrels in the week ending September 27.

US oil futures fell 1.6% to $52.75 a barrel, while Brent crude, the international benchmark, dropped 1.5% to $57.99 a barrel.

Dow falls more than 400 points

Stocks continue to slide this morning. The Dow declined by more than 400 points, or 1.6%.

The S&P 500 is down 1.6%, while the Nasdaq Composite is 1.5% lower.

Mixed bag for Big Three's quarterly auto sales

Americans still want to drive big trucks. Smaller sedans on the other hand? Maybe not so much.

Ford (F) reported an overall drop in its third quarter sales of nearly 5% Wednesday – even though truck sales were up almost 9% from a year ago. Ford’s Big 3 rival Fiat Chrysler (FCAU) said that third quarter sales were flat, despite a 15% surge in Ram sales.

General Motors, which is in the third week of a United Auto Workers strike that threatens to hurt its profits, actually fared the best during the past three months. GM (GM) said total deliveries from dealers rose 6.3% in the third quarter, with solid increases for the Chevrolet, Buick, Cadillac and GMC brands.

Still, investors weren’t impressed. Concerns about a weakening US economy and the trade war with China weighed on the broader market – and none of the auto stocks were spared. GM and Ford fell 4% while Fiat Chrysler’s stock was down nearly 1.5%.

Dow falls 300 points in first minutes of trading

It promises to be another day of sharp losses for US stocks.

Within the first minutes of trading, the Dow fell as much as 300 points and all three major indexes were down more than 1%.

Concerns about the health of America’s economy, its manufacturing sector, and the effects of the US-China trade war are weighing on investors, and raise expectations that the Federal Reserve will step in to boost the economy once again this month.

Stock slide at the open

US stocks opened in the red on Wednesday, adding to Tuesday’s losses.

On Tuesday, the Dow and the S&P 500 recorded their worst day in more than five weeks, after economic data showed the US manufacturing sector contracted for a second month in a row in September.

  • The Dow opened 0.6%, or 148 points, lower.
  • The S&P also slipped 0.6%.
  • The Nasdaq Composite fell 0.7% at the opening bell.

All three indexes extended their losses in the first minutes of trading, with the Dow falling more than 200 points.

Shares of Stitch Fix (SFIX) dropped some 15%, after the company’s revenue guidance came in below forecasts.

In other earnings, Bed Bath & Beyond (BBBY) is due to report after the bell. Its shares opened down 0.7%.

Brokerages continue to be in focus, after TD Ameritrade (AMTD) cut some commissions on US trades. Charles Schwab (SCHW) did the same on Tuesday.

TD Ameritrade’s stock fell 3.2% Wednesday morning, while Charles Schwab shares traded down 2.1%. ETrade’s (ETFC) stock fell 1.6%.

Coca-Cola Energy launch is a 'headwind' for Monster, analyst says

The upcoming launch of Coca-Cola Energy drinks in the United States could be bad news for Monster.

Analysts at Guggenheim just downgraded Monster’s stock (MNST) because it’s cautious of its new competitor. The firm said it expects Monster’s stock to bounce around until it can measure Coke’s impact.

Coca-Cola (KO) Energy is already sold in 25 other countries, but Guggenheim said its concerned that Coke’s US launch could be a “bigger headwind, at least in the short-term, than Monster can offset with innovation.”

But it’s not completely down on Monster: “We continue to think Monster is a leading core energy brand with substantial growth potential, especially internationally, and the company has solid fundamentals relative to beverage peers,” analysts wrote.

Shares slid 4% in early trading. The stock is up 10% for the year.

Opinion: Many Americans are about to feel the burden of Trump's tariffs

Mary E. Lovely is a professor of economics at Syracuse University and non-resident senior fellow at the Peterson Institute for International Economics. The opinions expressed in this commentary are her own.

As the United States and China prepare to resume talks later this month, hopes run high that there will soon be an end to the destructive trade war between the two nations.

Given how difficult it’s proving to achieve lasting reform of China’s industrial and technology policies, it’s unlikely a long-term resolution will be reached this month. Indeed, President Donald Trump recently softened his stance and agreed to consider an interim deal, presumably one that revives US agricultural exports but falls short on fundamental Chinese reforms.

Trump badly needs a deal that removes him from the tightening noose in which he now finds himself. From here forward, further ratcheting up the trade war will bring visible pain to American households, with implications for his re-election chances next year.

Fallout from the trade war so far has been painful, but manageable. Grain farmers are the biggest losers to date. Exports of soybeans to China in 2018 fell by 74% from the year before. The administration has been able to palliate the side effects with $24.5 billion in aid so far, but further funds depend, in part, on the willingness of the Democratic-controlled House of Representatives.

Read more here.

Private payrolls miss expectations. Is a weak jobs report coming on Friday?

Well, this doesn’t bode well for Friday’s jobs report: ADP reported slightly lower-than-expected private payrolls for September and a hefty revision for the previous month’s jobs number.

Private payrolls climbed by 135,000 in September, according to the ADP national employment report. That’s down from August, and slightly below the Refinitiv consensus estimate of 140,000.

August payrolls were revised down to 157,000 from 195,000 at the initial reading.

“The fact that August number was revised lower and today’s number also missed the forecast, this has set the stage for a lower reading on Friday,” said Naeem Aslam, chief market analyst at ThinkMarkets UK.

Expectations are rising for a Fed rate cut in October

Market expectations are rising for a Fed interest rate cut later this month.

As recently as Monday, there was a less-than 40% chance of a quarter-percentage point cut at the Fed’s October 30 meeting. That has now climbed to 70%, according to the CME FedWatch Tool.

Expectations for a cut in December are now at 85%.

So what happened?

On Tuesday, the monthly manufacturing report from the Institute of Supply Management showed that US manufacturing sector contracted for a second month in a row in September.

The index, which measures month-to-month changes in the industry, dropped to its a lowest level since June 2009.

The data is helpful for those who argue that America’s economy is slowing and needs stimulus in form of loser monetary policy.

Fed Chairman Jerome Powell, who has referred the two rate cuts that already happened this year “mid-cycle adjustments”, might just turn more dovish as the year draws to a close.

Christine Romans: Brace yourself for more comparisons to 2009

Something has been catching my eye in the daily barrage of economic data we use to monitor the economy’s health. Three little words: “Weakest since 2009.”

In less than 24 hours, two pieces of evidence that President Trump’s trade war is moving the American economy in the wrong direction:

  • The September ISM manufacturing index contracted for a second month in a row, the weakest reading since 2009.
  • The World Trade Organization downgraded its global trade growth forecast to just 1.2% this year, down from 3% in 2018. That’s the slowest growth in global trade since 2009. The WTO warns slower trade could crimp investments and jobs.

Of course, the 2009 comparison is troubling. The deep and painful Great Recession began in December 2007 and ended in June 2009. 

Economists increasingly worry trade risk could tip the US economy into recession after ten years of growth and job creation.

From the chief economist at Deutsche Bank: “There is no end in sight. The recession risk is real.”

America’s CFOs now list economic uncertainty as their top concern. In a recent survey 53% of CFOs said they expect the US to enter a recession prior to the 2020 presidential election. 

The president routinely blames the Fed, but business leaders, plant managers, and company bean counters in survey after survey blame economic uncertainty on the US-China trade war.

Until there is a resolution there, expect more comparisons to 2009.

US futures are on the decline

Dow futures are currently down 200 points. Nasdaq and S&P futures are also moving lower.

Today’s potential losses follows a rough Tuesday. The Dow closed 350 points lower after a key economic report showed that American factory activity fell for a second month in a row in September.

The ISM manufacturing index dropped to 47.8 in September, compared with the Refinitiv consensus forecast of 50.1. A level above 50 marks growth.

That was the lowest reading since June 2009, the last month of the recession, according to the Institute of Supply Management, which puts out the report.

The manufacturing sector shrank for the first time in three years in August, according to the ISM index, which measures month-over-month activity, as the effects of the trade war and slowing global demand set in.

Manufacturers cited the US-China trade war as weighing on demand and making materials more expensive, according to the ISM.

The world's factories are in trouble

The world’s factories are hurting because of the trade war. That much is clear.

US manufacturing activity contracted for the second month in a row in September, bucking expectations for a slight recovery. The Institute for Supply Management’s closely watched manufacturing index dropped to its lowest level since June 2009.

Why? “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019,” said Timothy Fiore, chair of the ISM’s manufacturing business survey committee.

A company that makes machinery cited softening demand and reduced backlogs. “The tariffs have caused much confusion in the industry,” one electrical equipment, appliance and components manufacturer said.

CNN Business’ Matt Egan points out: the Federal Reserve, which President Donald Trump quickly said was to blame:

It’s true that a strong dollar makes it harder for US companies to export their goods. But analysts argue that it’s the trade war, not the Fed, that is contributing to the dollar’s strength. Nervous about the global economic slowdown and trade policy, investors are dumping foreign currencies in favor of the greenback.

Read more in today’s “Before the Bell” newsletter.

Today on 'Markets Now:' Invesco's Krishna Memani

Federal Reserve chair Jerome Powell has been roundly criticized by President Donald Trump for not cutting rates fast enough and by investors for possibly ignoring signs of a slowdown.

Here’s a hot take for you: Powell is actually doing a good job.

Krishna Memani, vice chairman of investments at Invesco, gives rave reviews to Powell for how he handled questions in his last press conference in mid-September. The Fed cut rates again, as expected.

“It is remarkable that Powell didn’t give anything away and thus preserved the operating flexibility of the Fed, something neither he nor previous Fed Chairs Janet Yellen and Ben Bernanke for that matter, were able to do,” Memani wrote in a recent blog post.

Programming alert: “Markets Now” streams live from the New York Stock Exchange every Wednesday at 12:45 pm ET. Hosted by CNN Business correspondents, the 15-minute program features incisive commentary from experts.

Retail sales in Hong Kong sink

Hong Kong reported dismal retail sales figures after market close. Total retail sales volume in August fell by more than 25%.

The year-on-year decline is the steepest for a single month on record, according to a government spokesperson. The plunge reflected “severe disruptions” to tourism and consumer activity caused by the protests.

Elsewhere in Asia, markets moved lower after the US reported particularly dour manufacturing data — a potentially troubling sign for the global economy:

  • Japan’s Nikkei (N225) closed down 0.5%
  • South Korea’s Kospi (KOSPI) sank 2%
  • Hong Kong’s Hang Seng (HSI) dropped 0.2%
  • China’s Shanghai Composite Index (SHCOMP) remains closed for the holidays