*Currency markets and Bitcoin trade 24 hours, the figures here indicate movements between 9am and 4pm ET #1 Bearing the brunt of the sell-off
There is no joy in rebounding off of Friday's session lows to close down 1.7% percent on the S&P 500 and 2% on the Nasdaq. It could've been worse given that U.S. markets opened even lower following less than spectacular earnings from Amazon and Google after the bell Thursday. The S&P 500 officially fell into a correction intraday, but rallied out of it in the closing hours to this brutal week.
Here's where we ended up (or down) for the week:
DJIA: -2.97%
S&P500: -4.03%
Nasdaq: -3.78%
Here's where we are so far for the year:
DJIA: -0.48%
S&P500: -0.56%
Nasdaq: +3.82%
While we are hot-stepping in and out of correction territory among the major U.S. indexes, equity markets around the world are dangerously close to Bear Market territory. 63 percent of The MSCI Global Index, which tracks major global equity markets, is in Bear territory, according to Reuters. The biggest declines are coming from Europe and Asia, except for Japan, with Europe experiencing the most equity outflows of any region.
This statistic from Bank of America Merrill Lynch says it all:
742 of 2767 global stocks, 919 of 1150 Emerging Market stocks, and 1164 of 1899 NYSE stocks are in bear markets.
Remember, a Bear market is typically referred to a 20 percent or greater decline of a security or index from its most recent high.
The major U.S. markets are not in a Bear market, although many individual stocks are, and even more are in correction territory.
Why it Matters:
"The harder they come, the harder they fall…"
Jimmy Cliff - Reggae music legend
Jimmy Cliff's most popular song is actually a rallying cry for the oppressed, encouraging them to rise up and face their fears, no matter how big they are. In the case of the markets, of late, it's more of a metaphor for the outsized impact of the FAANG stocks on the overall markets and market sentiment.
Apple, Amazon, Google and Facebook collectively make up 12 percent of the S&P 500 in terms of their 'weight', according to slickcharts.com. Remember, the S&P 500 and the Nasdaq are 'market weighted', indexes, unlike the Dow, which is a 'price weighted' index.
A big move from any of these mega-caps can tip the boat in either direction. On the way up, these stocks were the suspenders of the S&P 500 and Nasdaq. On the way down, they are more like a pair of wet beltless trousers with rocks in the pockets. Put simply, they are a drag.
Collectively, FAANG stocks are down 21 percent from their highs - having their own Bear market party. Facebook is down 33 percent of its 52 week high. It's not just a FAANG problem. Semiconductors have been slaughtered, with the iShares PHLX Semiconductor ETF down 22 percent from it's highs. Remember, semis are key components in every computer or handheld device. A slowdown in that sector could portend a slowdown for hardware sales, from PCs to servers to smartphones. Retailers are also falling hard. Amazon's miss is every retailer's problem, given that it has become a proxy for consumer sentiment.
What's Next: The fourth quarter is typically strong for retail sales in general, and for sales of smartphones and consumer hardware. Businesses have already created their spending budgets for the following year. If semiconductor sales are slowing down, it's a sign of slack demand by enterprises (businesses), which represents the majority of tech spending worldwide. Consumers may be able to pick up some of the slack if they decide they absolutely need the new iteration of the iPhone, Android or Samsung Galaxy this Fall. Early indications are not that rosy, so we'd need to see some upside surprise to catalyze this sector.
To be sure, this is not just a technology stock problem. Yes, tech stocks, especially several FAANG components, have fallen precipitously this year. But many of them have also rose dramatically in the first half of the year, so their sell-offs into correction territory are more pronounced,
The harder they come... #2 - Tesla Trouble, again… Elon Musk loves to over-share. However, he may not be that enthusiastic about having to turn over documents to the Dept. of Justice regarding production numbers for the Model 3. The WSJ reports that the DOJ has requested information from the company and is looking into whether "...Tesla misstated information about production of its Model 3 sedans and misled investors about the company's business going back to early 2017." Why it Matters: Tesla's legal troubles seemed to be behind it after the company settled a lawsuit filed by the SEC around Elon Musk's infamous "funding secured", tweet about taking the company private at $420/share. Tesla paid a $20 million fine and Musk agreed to step down as Chairman. If true, inflating sales figures for its most popular product could be a far more serious legal infraction that could have bigger implications. Tesla has not disclosed information about the DOJ inquiry in its SEC filings, to date, but says it has yet to receive a subpoena from the department. Tesla's shares rallied this week following the company's upbeat earnings report, and managed to add an additional 2 percent today - one of the few green patches on the Nasdaq. Either investors don't care about this news or just haven't caught up to it yet. What's Next: Tesla's response to the DOJ investigation will be critical. If it's all smoke and no fire, the impact may be minimal. If the DOJ finds out that Tesla inflated those sales and production figures, Musk will certainly face more scrutiny and potentially a criminal investigation. The WSJ report landed on the same day that Larry Ellison, the founder and CTO of Oracle, disclosed that his second largest personal investment is Tesla, per CNBC. Ellison reportedly defended Musk at Oracle's annual developers conference, and criticized the media for its treatment of the Tesla CEO. Read More: Tesla Says Has Not Received Subpoena on Model 3 Production Top 3 Tesla Shareholders Chart of the Day: Apple and Microsoft soften the blow on tech sector
Even as the Nasdaq Composite remained pressured well within bearish correction territory and the S&P 500 dipped into correction on Friday, two major tech firms have held up relatively well despite the volatile market environment. Apple and Microsoft, though both undeniably down from their early October record highs, have managed to maintain highly positive year-to-date performance. The same cannot be said for many of the major market and sector averages.
The chart below compares percentage performance from the very end of 2017 up to Friday for Apple , Microsoft, the S&P 500, and the SPDR Technology Select Sector ETF (XLK) . While the S&P 500 has now actually dipped slightly into negative territory for the year, the technology sector as measured by the XLK ETF is still up a respectable 6%. Much of XLK's resilience, even despite the recent downturn in FAANG stocks and the overall market, has been due to the ETF's heavy leaning towards its two largest holdings – AAPL and MSFT. AAPL currently occupies around 21%, and MSFT comprises around 17%, of XLK's holdings – far surpassing the next largest component, Visa, at only 5%.
As of Friday's market close, Apple was up around 26% and Microsoft was up around 24% year to date, both impressive figures given the S&P 500's now-negative YTD performance, and a primary reason the tech sector has escaped the worst of the current market carnage.  CONNECT WITH INVESTOPEDIA |
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