The Week In Review


U.S. equities reclaimed a nice chunk of their losses for the week on Friday in another volatile trading session. The S&P 500 gained 1.5%, while the Dow Jones Industrial Average and the Nasdaq Composite advanced 1.4% apiece. The small-cap Russell 2000 also rallied, climbing 1.0%.

The S&P 500 covered a wide range of about 105 points--up 2.2% at its high and down 1.9% at its low.

Stocks opened in positive territory, but began moving lower shortly thereafter. The market hit negative territory in the late morning, but the retreat came to a halt as the S&P 500 approached its 200-day simple moving average (2539), which it had not tested since right before the 2016 presidential election.

The S&P 500 dipped slightly below that key technical level, which served as a springboard for renewed buying efforts which culminated in a late rally that left equities at their session highs.

The defense of the 200-day simple moving average proved to be a silver lining for investors, who endured an otherwise terrible week.  The S&P 500, the Dow, and the Nasdaq lost a little more than 5.0% apiece this week and now trade roughly 9% below the record highs they hit on January 26.

10 of 11 sectors finished Friday in the green as advancing issues outnumbered declining issues 1.4 to 1 at the New York Stock Exchange.

The top-weighted technology (+2.5%) and financials (+1.9%) sectors were relatively strong throughout the session, settling near the top of the sector standings.

Within the tech space, NVIDIA (NVDA 232.08, +14.56) jumped 6.7% after blowing past Q4 earnings and revenue estimates and raising its guidance for the first quarter.

On the downside, the energy sector (-0.4%) finished at the bottom of the sector standings as the price of crude oil declined for the sixth session in a row.  West Texas Intermediate crude futures tumbled 3.1% to $59.23 per barrel--their lowest level since the end of December.

In Washington, Congress passed a budget deal early Friday morning, but not before shutting down the government for a few hours--the previous spending deal ran out at midnight. The deal will increase spending caps and raise defense and non-defense spending by approximately $160 billion and $130 billion, respectively.

The bill will also provide an additional $90 billion for disaster aid and extend the debt ceiling until 2019.

In the bond market, U.S. Treasuries ended the week on a higher note, with shorter-dated issues showing relative strength.  The yield on the 2-yr Treasury note declined seven basis points to 2.06%, while the benchmark 10-yr yield slipped two basis points to 2.83%. Yields move inversely to prices.

Friday's economic data was limited to December Wholesale Inventories, which increased 0.4% month-over-month ( consensus +0.2%). The key takeaway from the report was that the sales increase outpaced the inventory increase by a sizable margin. That is a step in the right direction for wholesalers trying to regain some pricing power.

On Monday, investors will receive just one piece of data--the January Treasury Budget--which will be released at 2:00 PM ET.

  • Nasdaq Composite: -0.4% YTD
  • S&P 500: -2.0% YTD
  • Dow Jones Industrial Average: -2.1% YTD
  • Russell 2000: -3.8% YTD

Week In Review: A Wild Ride

The equity market dropped sharply this week, with the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite losing around 5.0% apiece in volatile trading. Sizable gains on Tuesday and Friday helped keep losses somewhat in check, but they couldn't keep the major indices positive for the year.  The three averages are down between 0.4% and 2.1% year to date.

This week's selling was related to fears about rising interest rates, and the realization that stocks have gone too far, too fast, but it was a collective de-risking effort following the implosion of short volatility ETFs that acted as the expedient for broad-based and indiscriminate selling activity.  The S&P 500 soared 7.5% in the first four weeks of 2018 on top of last year's 19.4% rally.

Technical, mechanical, and psychological forces all came together to knock back the market in an abrupt fashion.

The S&P 500 breached its 50-day simple moving average for the first time in five months. Weak-handed investors were consistently shaken out of "buy-the-dip" trades this week, sending stocks, and investor sentiment, even lower.

Congress missed a midnight spending deadline on Thursday--forcing a partial government shutdown--but passed a two-year budget deal a few hours later. The bill will boost spending by approximately $300 billion over the next two years, provide an additional $90 billion for disaster aid, and extend the debt ceiling until 2019.

The increase in spending prompted concerns about fiscal discipline, especially considering debt issuance was already expected to rise due to changes to the U.S. tax code. These concerns kept Treasuries in check and yields at multi-year highs.

However, outflows from the stock market ultimately edged out fiscal concerns, leaving Treasuries modestly higher--and thereby Treasury yields modestly lower--for the week.  The benchmark 10-yr yield finished one basis point below the four-year high it touched last Friday at 2.83%.

Meanwhile, the CBOE Volatility Index (VIX), often referred to as the "investor fear gauge," ended the week higher by 66.7% at 28.86.

All 11 S&P 500 sectors finished the week in the red, with losses ranging between 2.8% (utilities) and 8.5% (energy). In general, cyclical sectors--including the heavily-weighted financial sector (-5.8%)--underperformed their countercyclical peers.

The energy sector struggled as West Texas Intermediate crude futures dropped 9.5% to $59.23 per barrel--their lowest level since the end of December.

Overseas, equity markets in Asia and Europe finished the week solidly lower, following Wall Street's lead. China's Shanghai Composite and Hong Kong's Hang Seng led the retreat in Asia, dropping 9.5% apiece, while Germany's DAX and France's CAC set the pace in Europe with losses of 5.3% apiece.

The market still anticipates that the next rate hike will occur at the March FOMC meeting as Fed officials minimized this week's sell off, continuing to emphasize a path of gradual rate increases. The CME FedWatch Tool places the chances of a March rate hike at 71.9%, virtually unchanged from last week's 76.1%.