The Week In Review

3/23/18

Stocks dropped again on Friday, piling on losses for the week; the S&P 500 tumbled 2.1% to 2588.26, the Nasdaq Composite declined 2.4% to 6992.67, and the Dow Jones Industrial Average slid 1.8% to 23533.20 -- its worst close since November 2017. The three major indices finished the week with losses between 5.7% and 6.5%.

Tariff talk carried over into Friday's session after China urged the U.S. to "pull back from the brink" following President Trump's Thursday decision to implement tariffs of up to $60 billion on Chinese imports -- which he says are a response to China's alleged intellectual property theft against U.S. tech companies. Beijing threatened to retaliate with tariffs on 128 U.S. products -- including wine, pork, fresh fruit, ethanol, and steel -- but investors took solace in the fact that those products represent a mere $3 billion of total value -- barely a drop in the bucket.

While fear of a trade war likely played a role in Friday's sell off, several other factors also persuaded buyers to stay on the sidelines, including the understanding that the Fed is operating with a tightening bias, the underperformance of the top-weighted technology and financials sectors, and the continued lack of technical support -- the S&P 500 has been beneath its 50-day simple moving average (2742) since Monday. It's worth noting that the benchmark index finished Friday just a tick above its 200-day simple moving average (2585).

All 11 S&P sectors finished in negative territory, with the financials (-3.0%), technology (-2.7%), and health care (-2.1%) sectors leading the retreat. The energy sector was the top performer, benefiting from a 2.4% increase in WTI crude ($65.87/bbl), but still finished with a loss of 0.6%.

In earnings news, Micron (MU 54.21, -4.71) tumbled 8.0% on Friday despite beating profit estimates for its fiscal second quarter and raising its earnings guidance for Q3, while Dow component Nike (NKE 64.63, +0.21) finished with a gain of 0.3% after reporting better-than-expected earnings and revenues for its fiscal third quarter.

Overseas, equity markets in Asia sold off sharply on Friday, with China's Shanghai Composite and Japan's Nikkei losing 3.4% and 4.5%, respectively. Meanwhile, the major bourses in Europe also finished the week on a broadly lower note, losing between 0.4% and 1.8%. The Euro Stoxx 50 (-1.3%) closed at its lowest level in more than a year.

Reviewing Friday's economic data, which was limited to the February readings for Durable Goods Orders and New Home Sales:

  • February durable goods orders climbed 3.1%, which is more than the 1.5% increase expected by the Briefing.com consensus. The prior month's reading was revised to -3.5% (from -3.7%). Excluding transportation, durable orders increased 1.2% (Briefing.com consensus +0.6%) to follow the prior month's revised decrease of 0.2% (from -0.3%).
    • The key takeaway from the report is that it showed a welcome rebound in business spending that has mitigated some of the nervousness about the loss of economic momentum seen in the data of late.
  • New Home Sales in February hit an annualized rate of 618,000, which is below the Briefing.com consensus of 620,000. The January reading was revised to 622,000 (from 593,000).
    • The key takeaway from the report is that new home sales declined for the third consecutive month, but are up 0.5% year-over-year.

Investors will not receive any economic data on Monday.

  • Nasdaq Composite: +1.3% YTD
  • S&P 500: -3.2% YTD
  • Dow Jones Industrial Average: -4.8% YTD
  • Russell 2000: -1.7% YTD

Week In Review: Another Negative (and Noisy) Week

Equities dropped sharply this week, giving up ground for the second week in a row, as investors took in the latest policy directive from the Fed, a new round of tariffs from the White House, and cries for greater data regulation following a scandal involving Facebook (FB). The S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average finished with losses between 5.7% and 6.5%, which marks their worst week since the big sell off in early February.

Facebook kicked off the week by declining nearly 7.0% on Monday following reports that research firm Cambridge Analytica mined the data of 50 million Facebook users without their consent, and then used that data to deliver targeted pro-Trump ads during the 2016 presidential campaign. The incident has given new life to proponents of data regulation and, in turn, been a headwind for shares of social media companies, which would likely see a decline in profits due to said regulations.

Investors turned their attention to monetary policy on Wednesday when the Federal Reserve increased the fed funds target range by 25 basis points to 1.50%-1.75%, as widely expected, and left its forecast for a total of three rate hikes this year intact. The latter was a relief for investors, who thought that the central bank might raise its 2018 forecast to include a fourth rate increase. However, the Fed does anticipate that it will need to be somewhat more aggressive in tightening policy over the next two years (2019-2020).

Trade war fears came back into the mix on Thursday after President Trump signed a presidential memorandum that allows for tariffs on up to $60 billion worth of Chinese goods. The tariffs, which the president says are punishment for China's alleged intellectual property theft against U.S. tech companies, prompted a retaliation response from China, which said it plans to levy duties of up to $3 billion on U.S. imports -- a drop in the bucket considering the overall value of imported goods to China.

11 of 11 S&P sectors finished the week in negative territory, with the top-weighted technology (-7.9%), financials (-7.2%), and health care (-6.8%) groups leading the retreat. The energy sector (-0.9%) was the top performer, benefiting from an increase in the price of crude oil; West Texas Intermediate crude futures jumped 5.7% to $65.87 per barrel -- their best level since late January. The crude rally was helped by the EIA's weekly inventory report, which showed that U.S. crude stockpiles declined for the first time in three weeks.

A breakdown of technical support played into this week's selling after the S&P 500 dropped comfortably below its 50-day simple moving average (2743) at Monday's opening bell. The benchmark index finished Friday just a tick above its 200-day simple moving average (2585).

Headlines provided by Briefing.com