It was looking like YET ANOTHER low volatility week…until Thursday… when finally some fireworks went off. Many attributed it to sabre rattling between the U.S. and North Korea but eventually the market has to come down, and a convenient reason will be found when the time comes. For the week the S&P shed 1.4%, its worst week since March, while the NASDAQ dropped 1.5%. Of note, the Russell 2000 index of small-cap stocks finished out the week 2.7% lower, its biggest one week decline since February 2016.
“From a geopolitical perspective, we understand why the escalation in tensions will have shaken some of the complacency out of investors,” said Eric Wiegand, senior portfolio manager at U.S. Bank Private Client Wealth Management. “And while risks remain elevated from a geopolitical perspective, valuations are not necessarily excessive, though full. But we’re in a low inflationary environment, which can help valuations remain elevated for longer than they would otherwise.”
Even with Thursday’s action we keep seeing stories about “historic” lack of volatility – by this measure the market is the quietest since 1965!!!
The last time Wall Street trading was this quiet, Lyndon Johnson was president, The Sound of Music was the movie to see, and on the radio, the Rolling Stones were searching for satisfaction. According to an analysis by Michael Batnick, director of research at Ritholtz Wealth Management, volatility in the U.S. equity market hasn’t just been in short supply of late, it’s on track for its lowest level in 52 years. “For the first half of the year, the average absolute daily price change, meaning all negative signs are removed, is just 0.32%. If the year ended today, this would be the smallest daily price change since 1965,” he wrote in a blog post. Batnick noted that this kind of environment was unusual, saying it “could change at any time of course, and in fact I would expect it to.”
Until Thursday the S&P 500 had only moved >1% (in either direction) 4 times this year! Now it’s 5! Further the S&P 500 has gone 284 trading days without a pullback of 5% or more.
Economic news was light and not worthy to mention.
Here is the 5 day weekly “intraday” chart of the S&P 500 .. via Jill Mislinski.
Most Americans (70%) cannot answer these 3 basic money questions:
- Suppose you have $100 in a savings account and the interest rate was two percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
- Imagine that the interest rate on your savings account was one percent per year and inflation was two percent per year. After one year, how much would you be able to buy with the money in this account?
- Do you think the following statement is true or false: Buying a single company stock usually provides a safer return than a stock mutual fund.
Here is the richest person in every state:
The week ahead…
Aside from North Korea, Tuesday will bring U.S. retail sales data for July which will be the major economic report of the week. U.S. retail sales logged declines for both May and June. Expectations are for 0.3% growth – a reversion to mean from the prior 2 months seems logical.
Many many retail companies report next week so that should “go well”.
On Wednesday, minutes from the Federal Reserve’s July policy meeting will be released but nothing extraordinary should be contained. The minutes may provide some more clarity on the Fed’s plans to begin unwinding its $4.5 trillion balance sheet in September.
Short term: Thursday’s selling broke the S&P 500’s consolidation pattern; now there is a small break below the 50 day moving average. Thursday was only the 5th such close below the 50 day moving average since May 1 (Friday was the 5th) – the others were very short lived before returning back above. The NASDAQ meanwhile “mostly” filled a gap from early July.
The Russell 2000 sunk like a rock this week falling all the way to the 200 day moving average. This has been the index that can not find it’s way in 2017 even as the large cap indexes continue to elevate and elevate month after month.
The NYSE McClellan Oscillator went red the week prior so we always go cautious when that happens even if from time to time it creates a false positive. So for short term timers that means raise some cash. Thursday it hit an extreme level over -80 which we don’t see very often which can lead to short term snap back rallies. But until we get back to sustained levels over zero caution remains in order.
Long term: Here are 5 year charts on the major indexes; at some point we will say something different but for now this past week’s selling was but a blip. Someday we’ll get more than a blip!
Charts of interest / Big Movers:
Monday, NxStage Medical (NXTM) soared 28% after Germany’s Fresenius Medical Care said it would acquire the medical-device firm for around $2 billion to boost its kidney dialysis business.
It’s been a horrible string for Teva Pharma (TEVA); after a bad week the prior week, shares sold off nearly 10% again on Monday ending at their lowest level since 2003 as Morgan Stanley turned bearish on the generic drugmaker in the aftermath of disappointing results. The rest of the week was nothing to write home about either!
It was a week…therefore a retail company implod… wait!! Nevermind! Michael Kors (KORS) soared nearly 22% as profit at the clothing and accessories company beat views.
I loved this quote by an analyst – not exactly applauding:
“I don’t know that these companies have bright futures, but the results weren’t as dismal as many people thought,” Meyer said. “If expectations get low enough, you can beat them.”
Meanwhile, Dean Foods (DF) plummeted nearly 21% after its earnings disappointed.
Wednesday, Office Depot (ODP) plummeted nearly 26% after it posted a quarterly profit that missed expectations. That’s more like what we’ve come to expect in the brick & mortar retail (non Amazon!) sector.
Annnnnnd… more of what we expect from retail Thursday as Macy’s (M) fell more than 10% as the retailer reaffirmed downbeat guidance, but reported second-quarter earnings and revenue that beat expectations.
Annnnnnnd… more of what we expect in the retail sector Friday as J.C. Penney (JCP) slumped 17% after it reported a wider-than-expected second-quarter loss.
Blue Apron (APRN) tumbled nearly 18% Thursday, despite a beat on revenue. So far, life as a public company has not been kind.
Same story with Snapchat (SNAP) which has not had a good go of it as a public company thus far. The stock slid 14% Friday, a day after the company’s earnings missed forecasts, and the social-messaging company disclosed that average ad prices fell in the second quarter.
Have a great week and we’ll see you back here Sunday!