Concerns over trade, faltering technology sales and fears around possible regulation of data are weighing heavily on markets this week.
The week began with a significant selloff in U.S. stocks, led by technology declines. Concerns over trade, faltering technology sales and fears around possible data regulation combined to push down on all major equity indices.
U.S. equities were lower on Monday given the sharp sell-off in technology. The NASDAQ declined 3.03% for the day following reports from The Wall Street Journal that Apple (AAPL) cut production on all three new iPhone models, putting pressure on AAPL supply chain names and the overall technology sector. While volume on the NASDAQ was roughly 8% below its 30-day average volume, declining volume as a percentage of total volume was 82% for the day. Compared to prior large sell-offs in the NASDAQ this quarter, Monday’s declining volume was less significant than the 90% and 89% on October 10 and October 24, respectively. We will continue to keep an eye on the follow-through on the NASDAQ following Monday’s sell-off.
– Mike Gibbs, Managing Director of Equity Portfolio & Technical Strategy
It was a bad day but changes little in terms of the big picture. The NASDAQ remains above its late October intraday low, the S&P 500 remains above its low from just two sessions ago, and the market needs to rally here very soon – or else I will start to get more concerned if the October lows are violated. But Monday was just a continuation of the volatility we’ve experienced for two months and still could be part of the bottoming process. Risk must be managed on an individual position basis, but that’s always the case.
– Andrew Adams, CFA, CMT, Senior Research Associate, Equity Research
Equity markets extended losses from last week into Monday. While no new information has hit the market, the selling pressure seems to be in the higher-growth oriented names that fall within the technology and consumer discretionary sectors. Much of the earnings news continues to be positive, with the U.S. leading the world as it prepares to finish 2018 with earnings growth of 25% or more year over year. Investors may be questioning why the markets are acting this way when earnings are coming in so strong. The issue may stem from the notion that the U.S. economy and U.S. earnings may be at peak growth right now. I don’t mean peak earnings, as it looks likely that we could see high single digit or low double digit earnings growth in 2019. However, the 10% or so earnings growth next year is far less than the 25% or so we might see this year. Forward guidance from firms has not been bad, but some big names have been indicating next year may not be as good as this year from a growth perspective. The markets are looking for reasons why next year or 2020 might be better than this year.
Markets are also looking at economic growth. The U.S. economy is helping drive the world as most countries are decelerating compared to the U.S. While 2019 might be a good year for U.S. GDP growth, it is unlikely to be as good as 2018 because it is unlikely that we get another fiscal tax cut. We may see 2.25-2.5% growth next year, but it’s still less than the 2.9-3.0% we are likely to see this year.
The market wants to know the delta – the change. The market wants to see that things are getting better. It’s hard for the U.S. to be better from a growth perspective relative to this year. To make matters a little worse, it’s the FAANGs (down 22% from peak) that are seeing the downside volatility, with Netflix and Amazon and other high growth companies leading the way down. These are some of the companies that have led the market over the last few years and have pushed their forward multiples very high. The question to ask is whether or not it’s time to switch out of these high-growth cyclical stocks for some more defensive stocks. Only the future will tell us that, but it’s always a good idea to be diversified.
– Nick Lacy, CFA, Chief Portfolio Strategist, Asset Management Services
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