foxex: Folding

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. Stocks Sink as Investors Sell at Record Levels

2. Chart of the Day: J&J's $39 Billion Baby Powder Problem

Markets Close

Dow
24,100.51 -2.02%

S&P
2,599/95 -1.91%

Nasdaq
6,910.67 -2.26%

VIX
21.63 +4.75%

INV Anxiety Index
98.9 Neutral

US 10-Yr Yield
2.891 -0.69%

Stocks Sink as Investors Sell at Record Levels

An unmitigated selloff across markets today vaporized the mini-rallies that punctuated the week. It started with China, who reported earlier this afternoon that industrial production and retail sales had slowed, which may or may not have been impacted by the tariff standoff. Europe followed soon after with a report that industrial output in the EuroZone fell to its lowest rate in four years. It doesn't take much to make investors want to sell these days, and these data points certainly do the trick. It's not always a causal relationship, but there are so many points of weakness across the global economy and stock markets that just a few drops of blood in the water bring out the sharks.

Major U.S markets fell around 2 percent or more today. Here's where we stand for the year across U.S. markets with less than two weeks of trading to go:

Beyond today's selloff, we now know that there has been a week-long wave of capitulation that drew a record amount of money out of stocks as markets weakened. Lipper, which tracks money flows, reported that more than $46 billion came out of U.S. mutual funds and ETFs, while $13 billion come out of bonds. Of the $46 billion that came out of equities, $45 billion was from mutual funds. That's where most people park their 401ks and IRAs, which means retail investors have thrown in their hands, folding as the year comes to a close.

Why it Matters:

Now, we don't know if investors are selling all their stocks and bonds, but the record level of outflows is alarming. It explains the pressure on stocks last week that wiped out any hopes for gains this year. People sell for all kinds of reasons:

Tax loss harvesting
Booking profits before heading to Cancun
Portfolio rebalancing
Higher interest rates mean better returns for cash and CD's
Risk aversion in the midst of a crazy political cycle
Just give me my damn money!!

Selling into a sliding market is always risky because no one can time the bottom. Everyone has their reasons, whether they are individual investors trying to turn a dime, financial advisors selling on behalf of their clients, institutional investors trying to protect gains, or computer algorithms that don't care what anyone thinks. Time horizons are important, but if you are an individual investor who does not necessarily need the capital for a life-stage event like retirement or college planning, take a look at this chart to put things into perspective.

Those are total returns for the S&P 500 going back to 1871. Past performance is no guarantee of future returns, but never forget to play the long game, in good times and in bad.

What's Next:

Next week is really the beginning of the end of the year before trading volumes wane. In other words, it's ''Go Time!' for retailers, and the U.S. consumer is strong, backed by a little tax break and a strong labor market. A government shutdown is looming, but the President says he intends to take a 16-day break at his resort in Florida. Congress also wants to go home, so they will either pass a continuing resolution to fund the government for a couple more months, resolve the impasses, or shut it down. I'll bet on the first option since that's been the pattern for the past 10 years.

The FOMC will meet next week and likely raise the overnight lending rate by a quarter percent. Book it. Pay attention to the comments from Chairman Powell and the other Fed governors who are speaking throughout the week. Are they hawkish and alluding to further hikes in 2019? Or are they Dovish and taking a 'wait and see' approach. The former will not sit well with investors contemplating capitulation.

Hang in there and have a great weekend.

Caleb

In Other News:

Johnson & Johnson's $39 billion baby powder problem (Read James below)

Robinhood forgot to mention something about those bank accounts

These retail stocks could buoy the market

The FAANGs have further to fall

Trump administration says it will cancel $150 million in student debt

Chart of the Day: Johnson & Johnson's $39 Billion Baby Powder Problem

Johnson & Johnson (JNJ) investors spoke loudly and clearly on Friday after Reuters issued scathing accusations against the company. Reuters' report alleged that key J&J executives and personnel knew since the 1970s that the company's iconic baby powder product contained cancer-causing asbestos, but failed to disclose it publicly. The company denied the allegations vigorously, likening the claims to "an absurd conspiracy theory."

Despite the company's denials, J&J's stock plunged nearly 12% from the previous day's close at one point on Friday — sliding from around $147 down to a Friday low near $130 on sharply elevated volume — erasing around four months of stock gains in the process.

Immediately prior to Friday's plummet, the stock had been trading just off a new all-time high, slightly below $149. By the time the dust settled on Friday, JNJ had pared some of its losses, but still closed down 10% for the day (and nearly -5% year to date), right around its 200-day moving average.

The key question now is, what happens to J&J and its stock going forward? If the allegations are true, the long-term implications for Johnson & Johnson could be enormous. At this point, however, the facts just haven't been verified yet. So we could be seeing a knee-jerk overreaction by investors. One thing, however, is somewhat more certain — this asbestos scandal is not likely to go away anytime soon. Investors, as we know, don't like uncertainty, so the heavy pressures on J&J's stock are likely to remain at least in the near-term.