foxex: Sea of red!

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Monday's headlines

1. Markets were a sea of red as tech leads selloff

2. Chart of the Day: Putting corrections in perspective

Markets Close

Dow
25,017.44 -1.56%

S&P
2,690.73 -1.66%

Nasdaq
7,028.48 -3.03%

VIX
20.11 +10.86%

INV Anxiety Index
101.20 +0.00%

US 10-Yr Yield
3.063% -0.011%

#1 Markets were a sea of red as tech leads selloff

The selling began early and intensified throughout the day as investors sold nearly everything in sight. Of course, there were a few stocks and sectors that avoided the damage, like Coca-Cola, Verizon and Pfizer, but they were lonely greenshoots in a sea of red.

Tech stocks led the bleeding as they have since August, and the headlines were ugly. The Nasdaq fell more than 3 percent, its biggest daily drawdown since October 24.

Apple (AAPL) fell as much as 7 percent on news from the WSJ that the company is slashing its new iPhone production forecasts due to slack demand. (We saw this coming….)
Facebook (FB) was down as much as 5 percent on a series of articles from the NYT (last week) and the WSJ (today) about how CEO Zuckerberg and COO Sandberg have handled the various crises around election interference and the sale of our personal data. Hint: Not well.
Nvidia (NVDA) continues to be the punching bag for tech bears (down 9 percent today) as the tailwinds of the crypto boom of 2017 are all but gone. Bitcoin traded below $5,000 today and mining tokens just isn't as profitable as it once was.

Tech was the best performing sector in 2017, and it's remarkably the second best performer of the major indexes in 2018, but only because of the fantastic runs made by FAANG stocks to begin the year. The Nasdaq 100 is down ten percent from its highs and in a full blown correction.

Why it Matters: As we've repeated over and over, the stock market was lifted to record highs by just a few stocks that have disproportionate weightings. We are talking about Apple, Facebook, Amazon, Netflix, Google and Microsoft, although there were others that helped along the way. Since those stocks are in nearly every technology index fund and major ETF, they can either be very helpful in a rally, or very heavy in a sell-off. We are experiencing the latter and its impossible to say when investor sentiment will turn back in their favor.

The sector rotation out of growth and technology stocks and into value has been happening since August. It may get worse as we approach the end of the year since there are very few catalysts to change perceptions.

What's Next: The holiday shopping season unofficially kicks off on Black Friday the day after Thanksgiving. That may benefit Amazon, Apple and other consumer-facing technology companies, but the autumn of discontent has done serious damage to their market caps and investor perception.

Beyond the markets, there was a rash of bad news for investors to stew over.

Here are just a few headlines from a painful day for investors (except for bears, who are gorging themselves on falling stocks)

Perspective: The sell-off we have been experiencing, while painful, is not historically bad, by any means. The numbers are large, because, well… the numbers are large. We've had multiple market records over the past two years, so a 10 percent decline looks bad, smells bad and feels bad.

But the declines are comparable to other pullbacks, as we will demonstrate in our chart of the day, below.

#2 Chart of the Day: Perspective on corrections

Around two-thirds of the stocks in the S&P 500 are in a correction, and about one-third are in a bear market today. The index itself is flat for the year, which is a function of the performance of a select few stocks that outperformed in the first half of the year.

The BMO Investment Strategy Group ran the numbers from the last correction back in February and showed that even fewer stocks entered bear market territory, although more stocks were in a correction. Every correction going back to 1990 was far worse, except for November 2012, June 2012, August 2004 and April 1997. This is not to say that this selloff won't get worse and turn into a full blown correction or bear market. We can't predict that one way or the other. It's just important to keep this perspective when we have days like today and last week when all we see is red.