Another disaster week for the markets, and one of the worst this writer can remember since the financial crisis. Indeed this was the worst one week performance for the S&P 500 since 2011 and NASDAQ since October 2008! Not even a more “dovish” Fed could save it Wednesday; definitely a change of character. All the charts continue to point to bad signs – that said in the near term the market is EXTREMELY oversold and vicious rallies can and do happen within downtrends but aside from the nimblest of traders it remains a time of caution. Maybe Santa can bring some rallying this week.
The Fed announced its fourth interest-rate increase of the year, hiking the federal funds rate by 25 basis points to a range of 2.25% to 2.5%, and deepened those losses during a press conference where Chairman Powell explained the decision and accompanying forecasts. The central bank now pencils in two rate hikes in 2019, not the three moves seen in September, and it still forecasts just one more hike for 2020.
Of particular concern was Powell’s discussion of the Fed’s quantitative tightening program, which is now removing $50 billion of federal government debt and mortgage bonds from the central bank’s balance sheet. Powell reiterated in his news conference that balance-sheet reduction would remain on “autopilot,” suggesting that even if the U.S. economy deteriorates significantly, as many market participants are predicting will happen next year, financial conditions will nevertheless become tighter month-by-month.
“The immediate market reaction has been that the statement is less dovish than anticipated,” said Steven Blitz, chief U.S. economist at TS Lombard. “Perhaps people had unrealistic expectations about what the Fed would say.”
“I would characterize the Fed’s statement as dovish, but perhaps not as dovish as the market hoped,” said Peter Berezin senior vice president of global investment strategy at BCA research.
Economic news was not market moving so we’ll ignore it.
If you care about “bear market” definitions (which are a bit silly) – commentators like to use -20%. The NASDAQ is there – down 21.9% from it’s 8/31 high. The S&P 500 is “only” down 17.5% from its 9/20 high.
“Even as we have gotten some positive signs on trade and news that rate hikes will be moderated next year, markets are still falling, which means investors are really worried about a global recession next year,” Craig Birk, chief investment officer of Personal Capital told MarketWatch.
For the week the S&P 500 fell 7.1% (wow) while the NASDAQ dropped 8.4% (double wow).
Here is the 5 day weekly “intraday” chart of the S&P 500 …not via Jill Mislinski.
More than 40% of student loan borrowers are in default, delinquency, or have postponed repaying their student loans. But really – what could go wrong with giving 20 year olds with no employment $70K in loans?!
The week ahead…
Monday will be an abbreviated session with markets closing at 1 PM EST. Other than that news flow won’t be too hectic so maybe Santa can sneak in for a few days!
Short term: Due to the heavy nature of the selloff we don’t have “short term” charts like usual, as one needs to see old support levels. The dotted lines on these charts show some areas of support back from 2016 (Russell 2000) and 2017 (S&P 500 and NASDAQ). There is a gap in the NASDAQ chart back in April 2017 that at the time we said “would eventually fill” – and it sounded laughable based on what happened the next year+. But now we see “eventually” could be on the docket.
Again let me say we are VERY oversold short term so a violent oversold rally could occur at any time. But that doesn’t change the overall picture of a major selloff.
The Russell 2000 has broken all 2017 lows – and is now working on numbers from 2016.
We are now in rare territory on the NYSE McClellan Oscillator, seen 3 times this year. So a bounce is certainly viable in the short term.
Long term: Major whooshes down on these long term charts. We have mentioned for quite a while that especially on the NASDAQ chart that once that channel was broken and remained broken for an extended period it could turn quite bad. This is quite bad. The 200 WEEK moving averages are now in play on both charts.
Charts of interest / Big Movers:
Tuesday, “pot stock” Tilray (TLRY) advanced 16%, after the cannabis company announced that it has reached a global supply and distribution agreement for medical marijuana with pharmaceutical giant Novartis AG. It is difficult to tell in this chart but in a relative sense this stock has held up very well during the massive selloff.
Wednesday, FedEx (FDX) closed 12.2% lower, after the logistics company announced Tuesday evening that it was lowering its guidance for 2019 and that it was starting a voluntary buyout program for some U.S. workers.
Facebook (FB) was in focus after the New York Times reported that the company shared user data with large tech companies to a greater degree than it had previously disclosed. The stock fell 7.3%.
Another brick & mortar on its death bed – Pier 1 Imports (PIR) was in focus Thursday, after the company announced it was considering “ strategic alternatives,” for the firm. It also named a new CEO and announced cost cuts and reduced spending. The stock plunged 57.6%.
Friday, Nike (NKE) was up 7.3%, after a Thursday-evening earnings release that showed the company beating Wall Street estimates for fourth-quarter earnings and revenue.
Perrigo (PRGO) fell more than 26% Friday after the company disclosed that Ireland is attempting to collect €1.64 billion in back taxes and penalties.
Have a great holiday week and we’ll see you back here Sunday!