After The Close
As highlighted in our midday report, Monday’s broad-based market selloff left most investors feeling blue. The downturn worsened throughout the morning hours and was driven by softness in the technology sector, where a recent data breach at Facebook (FB) begat regulatory fears across the industry. This set the stage for sizable aggregate losses in all ten of the major market sectors, with basic materials, healthcare, and energy stocks experiencing particular weakness. Overall, market breadth favored declining shares by a nearly five-to-one ratio.
The tech-driven nature of the Monday decline saw the NASDAQ shed roughly 1.8%, or almost 138 ponts, by the closing bell. That index’s retreat can be mostly blamed on the aforementioned social media giant’s more-than 7% retreat. Investors responded warily to reports of a data breach, fearing a potential fallout for the industry if regulators choose to implement more oversight measures. Accordingly, the shares of fellow tech titans Amazon.com (AMZN), Netflix (NFLX), and Google-parent Alphabet (GOOG) all struggled on Monday.
Meanwhile, the price of domestic crude oil also slipped, albeit more mildly than the equity markets. The broader weakness and a rise in U.S. rig count weighed on trading, but were slightly offset by some tension in the Middle East, specifically between Saudi Arabia and Iran. However, should expectations of higher U.S. output come to fruition, and outpace demand from China and other buyers, then per-barrel prices could see further pressure in the immediate future.
As the closing bell approached, each of the major indexes remained near session lows. Though the NASDAQ fared the worst, both the S&P 500 and Dow Jones Industrial Average had fallen more than 1.5%, respectively. The latter saw nearly all 30 components decline in value over the course of the day, with Caterpillar (CAT – Free Caterpillar Stock Report), Johnson & Johnson (JNJ – Free J&J Stock Report), and 3M Company (MMM – Free 3M Stock Report) posting the widest losses. The CBOE Volatility Index broached the 20-point threshold for the first time since early March.
Looking forward, traders are awaiting the Federal Reserve’s interest-rate decision on Wednesday, when most expect a tightening of monetary policy. Trade war concerns as well as additional developments from Washington will also likely play a role in limiting the bulls’ efforts to storm back after a trying open to the week.
– Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
1:40 PM EDT
Today on Wall Street, in the words of that rhythm and blues classic from the mid-1950s by Fats Domino, is really a “Blue Monday”. On point, midway through the session, the Dow Jones Industrial Average is down some 460 points and the NASDAQ is lower by an even more unsettling 187 points. The Dow's drop, meantime, has erased its 2018 gains to date and put that index within some 500 points of another correction.
Behind the selloff is a sharp retreat in the technology group. Meanwhile, all 30 of the Dow stocks are now lower. However, the slide in tech is not all that's worrying the Street; trade war fears, a Federal Reserve FOMC meeting that will be getting under way tomorrow morning and one that will almost assuredly result in a hike in interest rates, and concerns about the latest doings in Washington involving the Trump Administration, also seem to preoccupy investors.
As we head toward the latter stages of the session, a comeback by the market seems unlikely today, with fears that we could head still lower in the hours to come. Stay tuned.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The uneven performance of the U.S. equity market continued in the most recent five-day stretch of trading on Wall Street. Last week went to the bears, with some disappointing economic news, worries about inflation, and concerns about some upheaval in the Trump Administration (Secretary of State Rex Tillerson was removed of his duties by the President) provided just enough fodder for the bears to finish the week with a win. For the five-day stretch, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were down 1.5%, 1.0%, and 1.2%, respectively.
As noted above, the selling was fueled by an announcement early last week that President Trump had decided to replace Rex Tillerson as Secretary of State with Mike Pompeo. That move unnerved investors, along with a disappointing reading on retail sales last Wednesday and some figures in the Producer Price Index that stoked concerns about inflation again. That said, the news from the business beat has been mostly positive thus far in 2018. And on point, it was another strong report on the economy that helped the market on Friday.
The U.S. equity market rallied a bit on Friday, with some decent data on the economy providing some support for stocks. The investment community liked the jump in industrial production and capacity utilization last month. Specifically, Industrial production rose 1.1% in February, following a decline of 0.3% in January. Manufacturing production increased 1.2% in February, its largest gain since October. That report, along with mixed homebuilding data (housing starts were down year over year, but building permits, an even more forward-looking metric, rose notably), was enough of a catalyst for the market during this quiet period of earnings news from Corporate America. For the session, the Dow 30 and the S&P 500 Index were up 73 and five points, respectively, while the tech-heavy NASDAQ was flat. Market breadth clearly favored the bulls, with advancing issues exceeding decliners by a two-to-one ratio on both the Big Board and the NASDAQ, and nearly all of the top-10 equity groups, save for a slight decline in the tech space, finished in positive territory.
Turing to the week at hand, news from the Federal Reserve and Washington D.C. Is likely to drive trading, with several more weeks still to go before the first-quarter earnings season kicks into high gear. The latest two-day FOMC meeting commences tomorrow and is expected to result in a 25-basis-point interest-rate increase. With that maneuver already likely baked into the market’s valuation, investors will be more interested to see what the central bank says about inflation and its monetary course for the remainder of this year. That sentiment is likely to drive the market in the second half of Wednesday’s trading. We would also not be overly surprised if traders did not make any major moves ahead of the Fed statement on Wednesday afternoon at 2:00 P.M. EDT. Also this week, we will get data on existing and new home sales and the latest report on durable goods orders.
With the new stateside trading week set to begin shortly, the equity futures are presaging a mostly lower opening for the equity market, especially for the NASDAQ, with some possible skittishness ahead of tomorrow’s FOMC meeting at play. Investors, though, should note that the small-cap Russell 2000 futures are higher this morning, which may be a sign that the bulls will be heard from at some point today. So far overseas, the main indexes in Asia finished mixed overnight, while it is a mostly positive showing for the major European bourses, as trading moves into the second half of the session on the Continent. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
