foxex: This sell-off hurt!

Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday:

OOOF! Markets slammed. Techs routed
Sears close to bankruptcy... end of an era
Can you hear me now? Who rules smartphone sales
Chart of the Day: Momentum loses its mojo

#1 This sell-off hurt!

U.S. and global markets were a sea of red today, dropping the most since February.
Today's brutal tale of the tape:
DJIA: -3.15%
S&P500: -3.29%
Nasdaq: -4.08%

It's been an October of discontent for stocks, especially tech stocks. The Nasdaq is down more than 7 percent, while the DJIA and S&P 500 are down 4.4 percent and 3.3 percent respectively.

Wondering Why?

Rising rates? We know…
President Trump's comments on the Fed? That's why the Fed is independent, Mr. President.
Treasury Secretary Mnuchin's comments on China devaluing the Yuan. We are not the boss of them!
Investors rotate out of momentum? (See your daily chart below)
Anxiety attack? Better believe it.
More Sellers than Buyers? Always a good bet

Why it Matters: Every sell-off is unique. There is no point in trying to equate this one with the one we had in early summer or February, or January 2016, for that matter. What does matter is perspective, and perspective is personal. If this sell-off is making you want to sell your stocks and hide in cash, think about why you are invested in the first place. If your investing nest-egg is actually money you may need within a year for a purchase or major expense, the stock market may not be the place for it. Plenty of banks will keep it safe or sell you a 6 or 12-month CD for 2-3 percent return.

If you are invested for the long term, you have to be able to stomach sell-offs and corrections. That doesn't mean you should not be diversified and know your risk tolerance. That's your responsibility and if you feel like you need help figuring those out, sit down with a financial advisor or planner. This is what they do!

What's Next: It's only Wednesday!!?? Breathe, people.

But seriously… U.S. markets are not in a correction, yet. That would be a ten percent decline from the most recent peak. You'll see headlines about half of the S&P 500 in a correction, but this is a market of stocks. The Nasdaq is the closest one of the major markets to a correction, declining 8.48 percent since its August highs. It's being dragged into the mire by wicked sell-offs in the FAANG stocks and former high flyers like AMD and Nvidia. Those two are coming off the crypto led buying binge that reaped triple-digit returns last year as cryptocoin miners were using their chips and processors to make 'virtual currency'. Remember that stuff? Investors are piling out of tech stocks and into value stocks that kick out dividends. They are running for cover, but broad based sell-offs like the one we are in tend to drench everyone in their path. If you were not diversified going into this massacre, put that on top of your to-do list.

Read More:

October Effect

October: The Month Of Market Crashes?

A Stock Sell-Off Vocabulary Guide

#2 - Sears is heading for bankruptcy
It was only a matter of time, but it's still shocking to think that what was once the nation's biggest retailer - the Amazon of its time - is now a penny stock headed for Chapter 11 bankruptcy. Sears is reportedly set to file for bankruptcy protection this Friday ending a long spiral into the annals of corporate history.

Why it Matters: If you have been holding onto Sears stock or if you bought some of its corporate debt, you will lose everything. Chapter 11 protects Sears from its creditors and the stock is worthless. I don't imagine many of you are in either camp. This is more a lesson in the impermanence of corporate giants and the hubris of hedge fund owners who scoop up troubled companies and are too wed to their own strategies of how to fix them before it's too late.. Such is the case with Sears which was bought by Eddie Lampert and his hedge fund, ESL Investments. Lambert is the CEO and largest shareholder of the company, and has overseen hundreds of store closures, the selling of brands like Craftsman and Kenmore, and now, its bankruptcy filing.

What's Next: More like, who is next? Toys "R" Us was headed for a similar fate, but might still manage to pull a rabbit out of its hat and avoid bankruptcy protection. Mattress Firm filed for bankruptcy last week, a victim of the online mattress market that we hear in the commercial breaks of our favorite podcasts. Big box retailers have been on the ropes as Amazon has become an indispensable part of consumers' lives. Some, like JCPenney and Best Buy have managed to steady their ships by creating better in-store and online experiences. Sears was saddled with overwhelming debt and expensive leases on land in shopping malls that people don't go to anymore. It didn't evolve and it didn't downsize fast enough when shoppers changed their buying patterns. It's sad to see this bastion of American retailers fade away, but all businesses must evolve or die.

#3 Google launches Pixel 3, and Samsung laughs

It's been a big launch week for Google, which is hosting its big hardware event in New York City. The big newsmaker is its Pixel 3 phone, which is more like a really awesome camera that also has a phone, a full suite of apps and browsing capabilities. Let's be honest, the Mountain View, California-based company is not known for its hardware. They make devices to keep you living in an exclusively Google world and they are good at it. But the smartphone battle is really between Samsung and Apple, and Samsung has always had the upper hand.

Why it Matters: For consumers, your choice of device is very personal. If you are an Apple person, the thought of a Pixel or Galaxy is against everything you believe in. Google doesn't make a lot of money from its phones, relatively speaking. It doesn't even break them out on its income statement. Apple and Samsung, on the other hand, earn billions of dollars in profit from their devices and the ecosystems they build around them. The whiff of a sales decline in iPhones is enough to scare Apple's stock into a dizzying decline.

What's Next: Apple unveiled the iPhone XS, XS Max and the iPhone XR on September 12. The first two models went on sale in stores on September 21 whereas the iPhone XR will be available for pre-order starting October 19 and in stores a week later. Samsung will roll out its Galaxy S10 in early 2019. You better believe that they will have the best cameras ever created because we all need them to take pictures of our food, right?

We charted the smartphone shipments, based on IDC data, just to put Samsung's dominance into perspective for you:

Chart of the Day: Momentum is losing its mojo

As we mentioned earlier, momentum stocks are getting gored right now as the big money moves to value and dividend stocks. Today, everything got the pointy end of the stick, but pull back a few weeks and you'll see the divergence. In an overheated market where P/E ratios for high-octane tech stocks like Netflix and AMD get over-extended, these things happen. It's a cleansing of sorts, and it will swing back eventually.

Charlie Bilello of Pension Partners tweeted this chart earlier today. It shows the divergence between the Momentum Factor ETF and the Russell iShares Value ETF. Charlie is worth the follow on Twitter and this chart is worth your attention: