Wall Street closes in red on risk-aversion and dismal earnings

CBOE Volatility Index rises more than 6% on Thursday.
Trump criticizes the Fed's monetary policy.
European Commision says the EU will retaliate if the U.S. imposes tariffs on European car imports.

Eren Sengezer FXStreet

Major equity indexes in the United States started the day on a weak note as investors' focus, once again, turned to trade conflict headlines. The CBOE Volatility Index, Wall Street's fear gauge, rose more than 6% to suggest a risk-off environment.

Speaking in Brussels earlier today, Cecilia Malmstrom, the EU’s trade commissioner, said that there would be a 'disastrous' impact on the economy if the Trump administration were to impose tariffs on European car imports and added that the EU would retaliate. "When you see concerns over trade arise, you see small caps and the dollar typically rise, and that shows they are seen as safe haven assets," Shawn Cruz, manager of the trader strategy at TD Ameritrade in Chicago, ‎Illinois, told Reuters.

The risk-sensitive S&P 500 Information Technology Index (SPLRCT) closed the day 0.33% lower on Thursday. However, after the closing bell, Microsoft reported higher-than-expected Q2 revenue and EPS, which could help the sector rebound on Friday.

On the other hand, in an interview with CNBC, President Donald Trump said that he wasn't happy with the Fed's decision to raise rates and added that he was concerned about the potential negative impact of the Fed's monetary policy decisions on the economic expansion. The S&P Financials Index (SPSY) suffered the most from Trump's remarks and lost 1.44% on the day to weigh on financial-heavy Dow Jones Industrial Average, which erased 134.52 points to 25,064.77.

The S&P 500 fell 11.48 points, or 0.41%, to 2,804.14 and the Nasdaq Composite lost 28.27 points, or 0.36%, to 7,826.18.

DJIA technical outlook (via FXStreet Chief Analyst Valeria Bednarik)

"The Dow now barely holds in the green weekly basis, having bottomed for the day near last Friday's close. The decline, considering that the index advanced for the previous five sessions, seems corrective, given that in the daily chart, it holds well above its moving averages, with the shortest advancing, while technical indicators hold near overbought levels, with only the RSI retreating, currently at 60."

"Shorter term, and according to the 4 hours chart, however, the risk of a downward extension has increased, as the index settled below a now horizontal 20 SMA, still developing well above it's 100 and 200 SMA, as technical indicators extended their declines, now challenging their midlines. "

According to the analyst, supports are located at 25,045, 24,990, and 24,933, while resistances align at 25,061, 25,103, and 25,157.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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