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Treasuries Pop, Stocks Drop; Volatile Markets Continue

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Today's financial recap and tomorrow's financial outlook.

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To say that today's trading was a roller coaster would be a colossal understatement. From its overnight high to the intraday low, the S&P 500 future traded in a 68 point range, the largest in more than three years. By 12:30pm ET, trading in futures had already set new records for most products. The S&P 500 future traded almost two times the open interest in the contract by the end of the equity session. The VVIX index, which measures the 30-day expected volatility of the VIX, reached a new record high.

At one point during the day the major US stock indices - Nasdaq 100 (NDX), Russell 2000 (RUT), and S&P 500 (SPX) - turned negative for the year and all completed at least a 10% correction from the high less than four weeks ago. The SPX fell as much as 3% at the lows of the day. Energy stocks, the most beaten down sector in the past two months, were able to turn it around in the late afternoon, however, and help the broader market reclaim some of its losses. The SPX ended up closing down 0.81%, but fell another 0.60% in post-market trading following a disastrous report from Netflix.

The most volatile action today was in interest rates. At one point in the late morning, following the retail sales and producer prices report, the 10-year yield fell 36 basis points, the second largest absolute move in yields since 1990 next to the announcement in May 2009 that the Fed was including Treasuries in its QE program. The intraday low yield was 1.86%, the lowest since May 2013. Although major volume was seen at those levels, many market participants were unable to trade due to malfunctioning data feeds, and longer-dated Treasuries backtracked on much of their gains and the 10yr yield only finished lower by 6bps to to 2.135%.

Arb strategies were upset today when AbbVie (ABBV) announced that it was dropping its bid for Shire (SHPG) due to the government changing tax rules that will negatively affect the merger. Shire shares fell 30.49% in today's trading.

Shares of Netflix (NFLX) crashed over 25% in extended trading after the streaming video company reported third-quarter results. Its earnings were above consensus estimates, but it added fewer subscribers than Wall Street expected, and forward guidance was weak.

Retail sales declined by 0.3% in the month of September, worse than the -0.1% expected by economists. Due to the drop in gasoline prices, sales had been expected to fall as these prices would drag the nominal level down. However, after excluding the drop in gasoline and auto sales, retail sales fell by 0.2%, well worse than the 0.4% expected. This was a significant catalyst for the rally in Treasuries.

Tomorrow's Financial Outlook

The main theme tomorrow will be whether or not investors can digest the stomach churning price action from the last two weeks and continue to mount a sustainable rally. On the economic data front, industrial production and homebuilder sentiment is scheduled to be released. Industrial production is expected to rise by 0.4% in September and the NAHB Housing Market Index is expected to remain unchanged at 59 for October. Also on the calendar are speeches from four different Federal Reserve governors - three of whom are hawkish. After today's drubbing, they may adopt a softer tone to try and not upset markets even further.

The only piece of data scheduled overnight from the rest of the world is the final estimate of September eurozone consumer prices. Today's final estimate for Germany's consumer prices was unchanged from the preliminary reading.

There are plenty of earnings reports tomorrow, 27 in total. Notables include Baker Hughes (BHI), BB&T (BBT), UnitedHealth (UNH), Alliance Data Systems (ADS), Mattel (MAT), Fifth Third Bancorp (FITB), Philip Morris (PM), Goldman Sachs (GS), Schlumberger (SLB), Sandisk (SNDK), Capital One Financial (COF), and Google (GOOG).

Twitter: @Minyanville

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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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