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Major Moves
The past 24 hours have seen a dizzying array of volatile moves in a variety of financial markets. Stocks have dropped, bonds have risen and currencies have flash crashed.
The stock market has been retreating from its recent highs in the aftermath of Apple’s (AAPL) surprise warning – the first in more than 15 years – that it is not going to meet its revenue projections for last quarter. Management had expected the company to generate between $89 and $93 billion in sales for the quarter, but it now expects to only report $84 billion in sales. Apparently, sales in China are weak and could be getting worse.
Seeing the third largest company in the S&P 500 lose traction in its most important potential growth market deflated trader sentiment on Wall Street. Each of the three major stock indexes, the S&P 500, the Dow Jones Industrial Average and the Nasdaq lost more than 2% on the day.
Bond prices are soaring, and bond yields are plunging, as traders continue to run for safety amid the uncertainty that is bubbling up all around us. The 10-year Treasury Yield (TNX) slammed through 2.6% without batting an eye before finally closing at 2.55%, its lowest level since January 17, 2018.
Even the currency market added to the commotion today with the U.S. dollar (USD) flash crashing against the Japanese yen (JPY). It had already been a bearish two weeks for the USD/JPY currency pair before today, but the drop that was triggered last night after AAPL made its announcement was equal in magnitude to the previous bearish move.
This flash crash has many investors wondering if currency traders are going to start feeling pressure to cover their short positions in their JPY carry trades – a strategy where traders will borrow money denominated in JPY and use the proceeds to buy U.S.-based stocks. If these carry traders start to unwind their positions, they may be force to sell their stock holdings, which could put more downside pressure on the S&P 500.
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