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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday, September 03, 2020 Headlines

1. US markets in steep sell-off as tech leads losses

2. US weekly initial jobless claims fall to 881,000

3. Several big tech stocks fall into a correction

4. Sector shift out of tech for today, but YTD gains still strong

5. All eyes on August payroll report Friday

Markets Closed

Dow
28,292.73
−807.77 (-2.78%)

S&P
3,455.06
−125.78 (-3.51%)

Nasdaq
11,458.10
−598.34 (-4.96%)

VIX
33.19
+6.62 (+24.92%)

Bitcoin
10,742.85
−657.35 (-5.77%)

US 10-Yr Yield
0.622
−0.029 (-4.45%)

Image courtesy GettyImages/I love takeing photos and i think that is a really great opportunity for me to share them

Markets Today

"The harder they come, the harder they fall... one and all." - Jimmy Cliff

Stocks fell hard today, especially the biggest ones, including Apple (AAPL), Microsoft (MSFT), Facebook (FB), and Nvidia (NVDA), as sentiment shifted out of big tech in a big way. Those mega-caps drove the DJIA down 2.8%, the S&P 500 down 3.5%, and the Nasdaq down 5%, each to their biggest one-day losses since mid June. Volatility roared back with the VIX climbing 25% on the day.

There was no catalyst or a magic signal in the sky that led to the sell-off. Just like there was no catalyst that set off the feeding frenzy that took many of the most popular and widely held stocks to record highs. Many were arguably overcooked after months of frothy gains, and some investors—likely some very big ones—may have taken some profits and reallocated to other sectors. Cruise ship companies and other travel stocks were among the only winners today, but their businesses are broken and will take a long time to repair.

Economic news has been slightly better. Manufacturing activity in all developed economies continues to show gradual improvement—even in the U.S.

881,000 Americans filed for first-time unemployment claims last week, which was better than forecast, and the first drop below one million in several weeks. Still, more than 12 million Americans are officially unemployed, and over 28 million are receiving some form of unemployment insurance.

That hasn't bothered stock investors all summer, but something changed today.

Image courtesy Stocktwits

Headlines:

The Centers for Disease Control and Prevention has reportedly told states to prepare for a coronavirus vaccine to be ready to distribute to healthcare workers and high-risk groups by Nov. 1. "We're preparing earnestly for what I anticipate will be reality, is that there will be one or more vaccines available for us in November, December, and we have to figure out how to make sure they're distributed in a fair and equitable way," said Director Robert Redfield to Yahoo Finance.
The French government unveiled a €100 billion stimulus package to boost its hard-hit economy. Prime Minister Jean Castex outlined the government's "Plan de Relance" (Revival Plan) during a press conference earlier today.
Costco reported net sales of $13.56 billion for August, 15% percent higher from the same period last year. Total comparable sales (excluding the impacts from change in gasoline prices and foreign exchange) were up 14.5% and comparable e-commerce sales alone were up 101.9%.
Sanofi and GlaxoSmithKline Plc. began testing their experimental COVID-19 shot in the first patients on Thursday and aim to start late-stage trials before year's end. The drugmakers started human studies at 11 sites across the U.S. The trial will assess 440 healthy patients in two age groups: 18 to 49, and over 50. Sanofi and Glaxo aim to have results by December, allowing the final stage to begin.
FedEx plans to hire about 70,000 seasonal workers to handle the holiday surge of packages, a 27% increase from last year's peak, in what is expected to be an unprecedented level of delivery demand. FedEx has already added thousands of workers to keep up with a jump in deliveries as people order more online because of coronavirus concerns. In the quarter through May, FedEx's U.S. ground deliveries rose 20% from a year earlier.
Facebook will prohibit new political advertisements in the week before the U.S. presidential election in November and seek to flag any candidates' premature claims of victory, CEO Mark Zuckerberg said Thursday. The steps are meant to head off last-minute misinformation campaigns and limit the potential for civil unrest, Zuckerberg said. "This election is not going to be business as usual," he said.
The Justice Department plans to bring an antitrust case against Google as soon as this month, according to the NYT. Justice Department officials told lawyers involved in the antitrust inquiry into Alphabet, the parent company of Google and YouTube, to wrap up their work by the end of September, the NYT reported.
The U.S. trade deficit surged in July to $63.6 billion, the highest level in 12 years, as imports jumped by a record amount. The Commerce Department reported that the July deficit, the gap between what America buys and what it sells to foreign countries, was 18.9% higher than the June deficit of $53.5 billion. It was the largest monthly deficit since July 2008 during the 2007–2009 recession. The July deficit increase was driven by a record 10.9% increase in imports, which rose to $231.7 billion. Exports were also up but by a smaller 8.1% to $168.1 billion.

Tech Corrected

The abrupt sentiment shift away from 2020's tech winners has knocked many of them, like Tesla (TSLA), Advanced Micro Devices (AMD), Zoom (ZM), and Apple, into a correction, down 10% or more from their recent highs. These have been momentum stocks that have doubled their market caps—in some cases—in just the past two months. New investors may be shocked that this can happen, but it can, and it does.

Chart courtesy YCharts

Why the Sudden Change of Heart?

Some investors may be taking profits after the incredible run-ups in several of these companies. Others may be shifting out of these growth areas and rebalancing across other sectors. But once the big money starts moving out, it becomes a bit of a stampede until bottoms are formed. That could happen tomorrow, or it could take several days like it did back in the tempests of March.

Maintain Perspective

We haven't experienced a sell-off like today's in several months, which can be unnerving. But investors need to look at how far we've come and how fast we got here. The rally has been concentrated in the technology sector, so a 5% sell-off feels like a lot, but not when you look at how far we have traveled since the lows and year-to-date.

All Eyes on August Payroll Report on Friday

The U.S. nonfarm payrolls report for August is due out tomorrow morning at 8:30 a.m. ET. Economists are expecting one million or more jobs to have been added to U.S. payrolls last month, which would be a good sign. That said, there is a growing fear that it may prove to be the high-water mark for job gains in 2020. The ADP Private Payrolls report released Wednesday only showed an increase of 428,000 in August, less than half of the 1 million gain economists were expecting.

The trend in job postings improved toward the end of last month after two consecutive weeks of declines, according to analysts at Indeed, a high-frequency labor market indicator. The trend is now 20.2% lower than in 2019 as of Aug. 28. Notably, higher-wage occupation postings, which reflect companies' long-term expectations, are 27% below trend, versus 13% below trend for lower-wage occupations.

More News:

3 Homebuilder ETFs for Q4 2020

Alphabet (GOOGL) at 5-Year Resistance After Big Breakout

Twitter (TWTR) at Cusp of Major Breakout

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(charts courtesy YCharts)

Cruise stocks, including Carnival and Norwegian, are up today following news that select Carnival brands are planning to resume operations this year. Invesco's stock price rose by nearly 5% after an Evercore ISI analyst added the investment management company to the firm's Tactical Outperform list.

Nearly all eight of the companies that fell furthest today were tech stocks, with Apple being on pace for its worst decline since mid-March. Semiconductor stocks, such as Qorvo, NVIDIA, Skyworks Solutions, and Advanced Micro Devices, were hit particularly hard hit amid news that China is planning to implement new government policies to develop its domestic semiconductor industry to counter recent restrictions from the Trump administration.

Word of the Day

Retracement

A retracement refers to the temporary reversal of an overarching trend in a stock's price. Distinct from a reversal, retracements are short-term periods of movement against a trend, followed by a return to the previous trend. A retracement by itself does not say much, but when combined with other technical indicators it can help a trader identify if the current trend is likely to continue or if a significant reversal is taking hold. It is essential to determine the difference between a reversal and a short-term retracement.

Photo credit history.com

Today in History

Sept. 3, 1929:

On a sweltering 94-degree day, the steamy canyons of lower Manhattan were full of stock speculators back from the Labor Day hiatus. The Dow Jones Industrial Average peaked at 381.17, setting a new all-time high and closing up 27.1% for the year to date. Volume was a blistering 4.43 million shares. Radio Corp. of America, the hottest growth stock of them all, closed at $505 a share, up from $94.50 just 18 months earlier. Unfortunately, the Dow would not surpass this day's closing price for another quarter-century; it finally rose above 381.17 on Nov. 23, 1954. When you hear about "stocks for the long run," do you realize how long "long" can be?

Phyllis S. Pierce, ed., The Dow Jones Averages 1885–1980 (DowJones Irwin, Homewood, IL, 1982)