U.S. Equities in A Virtual Meltdown, Bonds & Dollar Higher, Gold Dramatically Lower
At its low today, the Dow Jones Industrial Average was trading off by over 650 points. As of this writing at 3:15 PM Eastern standard time, the Dow is off by a little over 550 points, which is a net decline of 2.11% on the day, closing on the lows at 25,520, down 665.
In fact, all the major U.S. indices are trading dramatically lower with the Standard & Poor’s 500 currently down 57 points (- 2.08%) at 2770, and the NASDAQ composite at 7252, trading off by 133 points for a 1.81% decline.
This morning’s jobs report came in stronger than expected, which drove up the U.S. dollar and treasury yields. Whereas a stronger U.S. dollar put dynamic pressure on the precious metals markets, investor concern about bonds and a more aggressive stance by the Federal Reserve were cited as catalysts driving U.S. equities dramatically lower.
According to Bloomberg Markets, “Strong jobs data that increased the likelihood the Federal Reserve will lift rates next month sent bond bulls scurrying and rattled equity investors who haven’t seen a week this bad in two years. The selling accelerated after Dallas Fed President Robert Kaplan suggested more than three hikes may be necessary this year. The 10-year Treasury yield popped above 2.85 percent for the first time since January 2014.”
“Equities haven’t been this volatile since the day Donald Trump was elected president of the U.S.”
Nine Parts Selling and Seven Parts Dollar
Today’s jobs report numbers effectively supported the U.S. dollar, which has gained approximately one half of a percent on the day and is partially responsible for the dynamic selloff in gold today.
Spot gold is currently trading off by $16.90 and is currently fixed at 1331.40.
According to the Kitco Gold Index (KGX), today’s $17 price decline is partially due to a strengthening U.S. dollar, which accounted for $7.40 of today’s selloff. The remaining decline of $9.50 is directly attributable to sellers bidding down the precious yellow metal.
One byproduct of mass liquidation in U.S. equities is a flight to cash and the liquidation of other hard assets to cover potential losses. This is most likely the scenario that is currently playing out, inasmuch as today’s lower gold prices have a larger selling component (percentage-wise) than the decline created from a strong U.S. dollar.
Although most analysts and investors were cognizant of the fact that a major equities meltdown could occur at any moment, and that that occurrence is long overdue, today’s equity meltdown still took many participants by surprise.
Although U.S. equities, as well as gold and silver, are trading off their intraday lows, the damage is done, and we could very well be at the beginning of a correction in U.S. equities.
Wishing you as always, good trading,
Gary S. Wagner - Executive Producer