It was a painful week for the bulls, as investors saw a decline in the value of their holdings of about 4%. Pundits believe that this may be the start of a long-needed correction, as stocks have not seen such a pullback in over two years. With major market averages at records, the decline was not only due, but welcomed. The weakness started on Monday when the ten-year Treasury note yield ballooned to 2.852%, a two-year high and almost equal to the 30-year bond rate. The effect is known as a flat yield curve and is typically an sign that traders are worried about the macroeconomic outlook. After some digestion in the middle of the week, a strong jobs report on Friday put up some red flags for the potential of future price inflation and more stress for the Federal Reserve to up their pace for interest rate hikes. The Dow fell nearly 666 points on Friday, alone and . . .
. . . there was no place to hide. All market sectors took a hit led by energy, basic materials and transportation stocks; bellwethers for economic activity. Shares of Exxon Mobil and Chevron – two Dow components – were particularly hard hit. Health care stocks were pounded after the President upped his war on drug prices, bringing down pharmaceuticals, drug distributors and health insurers. A non-profit strategy by Amazon.com, Berkshire Hathaway and JPMorgan Chase to enter the health care business on behalf of its combined 850,000 employees also caused concern for the group. Safe haven telecom and utility stocks were affected the least by the rout, loosing 1.3% and 2.4%, respectively.
The economy, however, remains strong, but much of the good news was priced into stocks and there was little room for traders to bid up prices at such elevated levels. As mentioned, a better-than-expected payroll report of 200,000 new jobs, a strong housing market, 3% GDP growth and decent fourth quarter earnings, should once again balance the equation for economics and stock prices. Plus a weakening dollar will help U.S. exports of manufactured goods, too. However, we may not have seen the end to the correction as it will take some time for buyers to re-enter as investors lock in profits and await a better entry point. What is certain, is more price volatility in the weeks and months ahead. In the meantime, take a breather and enjoy the Super Bowl.
Today’s Trivia Question: This week, Japan’s Fujifilm Holdings has offered to buy what U.S. company? Eastman Kodak; Pitney Bowes; Xerox Corp. or Electronics for Imaging.