#1 Markets bounce on relief rally
We didn't get it all back, but Friday's cute little relief rally has investors breathing a little easier going into the weekend. At least we won't have to endure any 'Markets in Turmoil", TV specials on Sunday night, or photos of exasperated floor traders on our newspaper front pages this weekend.
It's been quite a week, so let's take stock of it and ourselves:
From Wednesday to Thursday, about $8.5 trillion in market cap was wiped off of U.S. markets.
The DJIA fell more than 1,300 points or 5.25%, and the S&P 500 shed 145 points or 5.06%.
The Nasdaq fell into, and out of a correction between Thursday and Friday.
The VIX, or Volatility Index, spiked to its highest levels since February in what we like to call Volmageddon, and our own Anxiety Index peaked after its 2 month late summer nap.
Our readers were flocking our site, looking up terms like: Correction, Buy the Dips, Sell-Off, Bearish Engulfing Pattern, Bailout, Naked Shorting and Put. You would've thought it was 1929 all over again.
Why it Matters: Or should we say, "What Matters". Perspective matters, and we scooped out a healthy dose of it yesterday. To sum it up:
- Sell-offs happen, and they are not infrequent. We had a similar one in August, March and January, yet the market churned higher. Year to date, here's where we stand:
- DJIA: +2.13%
- S&P500: +3.10%
- Nasdaq Composite: +8.06%
- October is a volatile month
- Octobers preceding election years can be even more volatile, but have historically kicked off extended rallies
- Our markets have become so big that a 5 percent decline puts some big ugly red numbers on the board, but it takes a lot of prolonged selling to prompt a crash. Remember:
- A Crash is a 20 percent or more decline from a recent high
- A Correction is a ten percent decline from a recent high
- Selling begets selling among institutional investors, but that doesn't mean we need to capitulate. Selling into a falling market is never a good strategy. If you are desperate and need cash immediately, the stock market was never the right place for your money.
What's Next: Earnings season is officially underway. Banks like JPMorgan, Citi and Wells Fargo, reported today and had mostly good news. Their balance sheets are strong, their customers feel confident and lending is happening, despite rising rates. Like Jamie Dimon most bank bosses are worried about geopolitical issues such as trade wars and rising populism. We all are. We can't say there won't be another sell-off next week. Don't listen to anyone who says they can. That said, there is still a lot of uncertainty lurking out there that we should be attuned to: - A trade war with China. Most economists agree that it will only shave off a few tenths of a percent of GDP if Xi and Trump can't make an artful deal. They meet in November and it's in both countries best interests to work it out.
- Earnings! Heavy load next week, with Netflix, BlackRock, Johnson & Johnson, American Express and loads of others. Nasdaq has a nice earnings calendar if you want to stay up to date. Two thirds of S&P 500 companies have already reined in their forecasts for Q4, but sometimes they like to set a low bar and then show some upside surprise. So clever. We'll be paying attention to what they say about the health of the consumer and whatever is keeping them up at night.
- Buybacks have Slowed: The NYT pointed this out in an astute article yesterday. As we know, a record amount of stock buybacks have been announced this year. But, in the weeks heading into earnings, companies yank the reins on buybacks because they don't want to give off a whiff of insider trading. As we know, stock buybacks can make companies look more profitable since they reduce the amount of shares available to the public. They are perfectly legal, but it makes sense that we would see a slowdown at this point in time.
Side note: We saw a 200 percent increase in readers searching our Rule 10b5-1 term yesterday. That rule outlines the regulations around corporate insider buying and selling for both executive and company buybacks. Connection? - Algorithmic Trading: We are not going to blame the machines for all the volatility lately, but you can't ignore the fact that there are so many algo trading platforms that are programmed to buy or sell when markets, stocks or any securities trigger key levels. We've had a lot of technical analysis support levels breached this week, which can send signals to trading software programs at major financial institutions in a nano-second and move billions of dollars before we can blink an eye. It's the new normal and every major financial institution on the planet is headed this direction, so we have to get used to it.
Read More: U.S. Banks Profit from Higher rates, More Loans and Lower Costs How To Profit From Volatility One Thing to Never Do When the Stock Market Goes Down #2 Facebook: Sorry, Not Sorry
The original social network offered up some details of the data breach it disclosed last month. Turns out data on 39 million users was stolen or accessed illegally, and 14 million of those users' birthdays, list of friends, employers and educational backgrounds were accessed. Facebook says no financial information or logins to other websites have been used, which would have been a bigger problem. That's a relief… but why would Facebook have access to any of my financial information, anyway?
Here's Facebook's press release on today's disclosure:
Why it Matters: Let's be honest. Facebook's entire business model is about having access to our user data and selling it to marketers or organizations who want to know what we think and then try to influence our actions. The company has proven it can't keep it safe and has been punished for it by politicians and shareholders. There have been some defections as people have deleted their profiles, but nearly 2 billion people still use it, Instagram or any of the other Facebook subsidiaries that make a market of our personal information.
Facebook is sorry this happened, naturally.
"We're very sorry this happened. Your privacy is incredibly important to us, and we want to update you on what we've learned from our ongoing investigation…"
What's Next: Notice how the company doesn't actually apologize to its users. It's sorry it happened because it hurts its ability to use our information for marketing purposes. If it can't keep it safe, it is bad for business.
There will be more Senate hearings on this, to be sure. Those don't accomplish much apart from giving politicians a soap box to stand on in the hopes of getting a good soundbyte on cable news or… Facebook, for that matter.
There is one regulator whom Facebook should fear, however. That's Margrethe Vestager, the competition commissioner for the European Union. She doesn't play around. She'd like to see Facebook throw out its free business model and make users pay a small fee to use the platform in exchange for making Zuck & Co., cease making money off of our personal information. Not a bad idea.
Read More:
Facebook Says Attackers Stole Details From 29 Mln Users
How Does Facebook Make Money? Chart of the Day: Small-cap stocks still getting killed
Though most equity markets ended up stabilizing on Friday after the nasty tumbles seen earlier in the week, small-cap stocks remained the laggard as they have been for several weeks now.
The large-cap S&P 500 and DJIA indexes, and even the battered, tech-heavy Nasdaq Composite, were able to stay mostly out of correction territory for the week (even though the Nasdaq dipped briefly into correction on Thursday).
The small-cap Russell 2000, though, is the lone major benchmark index that closed well below -10% from its late August highs around 1740, -11.15% to be more precise. In the process, the index hit a new 5-month low on Friday, having fallen way below its closely-watched 200-day moving average.
Have small cap stocks entered the beginnings of a bear market, and will they lead the rest of the market further down? While this scenario cannot be ruled out, the overall market bounce on Friday bodes well for a potential near-term rebound in the heavily oversold small-caps.  CONNECT WITH INVESTOPEDIA |
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