Wednesday and Thursday finally brought some fireworks to a very complacent market. The S&P 500 had not had a 1% move in 74 days until Wednesday’s drawdown.
Rising yields were nailed as the culprit but months of rallying eventually require some sort of shake out – whatever the catalyst. Wednesday’s sell off was the worst day for the S&P 500 since February and the worst for the NASDAQ since June 2016.
The market losses are “a reaction from investors finally realizing we are in a higher interest-rate environment, and given the elevated level of stocks, market participants were likely looking for a reason to sell,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Higher interest rates typically bring on tighter financial conditions which could dampen growth going forward and equity markets are reacting to that.”
Yields on the 10 year fell back to their “breakout” level late in the week.
The Chinese market’s “reversal” was stunted by the selling in U.S. markets – now back to new recent lows.
It was such a rough week even gold got a bid as a “safe haven”.
This selloff in housing stocks continues unabated. Rising mortgage rates and high prices seem to be working together to hurt the sector.
One would think the selling would knock off some of the most speculative stocks but “market leader” Tilray (TLRY) held in amazingly well.
For the week the S&P 500 fell 4.1% while the NASDAQ sunk 3.7%.
Economic news was not market moving.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Markets look quite oversold short term and the start of earnings season may turn attention back to underlying fundamentals. The bears have constantly been crushed during this bull market run so let’s see if this is yet another case of that. Retail sales will also be reported.
Third quarter earnings will be a major driver as companies report over the coming weeks. According to FactSet, analysts are looking for earnings growth of about 19% and sales growth of 7%.
Short term: Amazingly both the S&P 500 and NASDAQ closed right on their 200 day moving averages to close out the week. Obviously both charts now have some damage to them after months of unrelenting rallying.
This Russell 2000 had been the worst performer going into this selloff, and obviously looks poor. It couldn’t even rally Friday like the other indexes. That said it’s extremely oversold short term.
The NYSE McClellan Oscillator tipped into the rarely seen -90 range Thursday which usually portends some sort of near term bounce. Last time we saw this sort of extreme reading was February.
Long term: Finally something to sweat about? The NASDAQ hit the bottom of it’s channel for the first time since 2016!
Charts of interest / Big Movers:
Tuesday, Affimed (AFMD) sank 24% after the biotech drug developer put two clinical trials on hold following the death of a study participant.
Wednesday, Imperva (IMPV) soared 28% after it announced it would be acquired by private-equity firm Thoma Bravo LLC in a deal valued at $2.1 billion.
The LONG rumored bankruptcy of Sears Holdings (SHLD) finally seems afoot. The stock skidded 17% Wednesday after the Wall Street Journal reported that the troubled retailer has hired M-III Partners LLC to prepare a bankruptcy filing. This was confirmed late Sunday.
The Chapter 11 filing to reorganize debts of the parent of Sears, Roebuck and Co and Kmart Corp follows a decade of revenue declines, hundreds of store closures, and years of deals by billionaire Chief Executive Officer Eddie Lampert in an attempt to turn around the company he bought in 2004. Shares in Illinois based Sears closed at about 41 cents on Friday, down from over $100 in the years after hedge fund star Lampert, once hailed as another Warren Buffett, merged it with discount store Kmart in a $11 billion deal in 2005.
“Pot” themed traders now seem to be looking at Pyxus (PYX) as the next Tilray – note the performance (and explosion of volume) in a terrible week overall! Again a very highly speculative space – this is a tobacco company with “cannabis plans” announced February. This reminds one of cryptocurrencies and all the crazy trends of the decades before. That said, short term speculators can still make money until the music stops playing.
Have a great week and we’ll see you back here Sunday!