Technology stocks took a drubbing this week, especially semiconductors and companies that make semiconductor equipment. Also, the FANG stocks took major hits as momentum in these names came under pressure. For the week, tech fell over 3% sending the Nasdaq Composite down by 2.6%. Needless-to-say, tech has led much of this year’s rally and a breather was not unexpected as valuations were getting well ahead of themselves. The Dow Industrials gave back a meager 48 points during the holiday-shortened week or 0.2%, but the S&P 500, which holds many of the big technology names, succumbed over 1%. More troublesome, however, was the NYSE advance-decline ratio where 2.5 times as many stocks declined than rose for the week and new 52-week lows outpaced those that reached new highs. Energy stocks also took a hit giving back 2.6% on average, as ongoing trade worries loom. Crude oil lost about $1.00/bbl. to end at $67.75. Emerging markets also took it on the chin, as more-and-more countries are having trouble with currency stabilization and economic growth. Hence, I have taken down my short-term outlook for the group (see yesterday’s posting). Safe-haven utilities managed a nearly 1% gain, and along with industrials were the only two sectors in the green.
As for the economy, the Institute of Supply Management reported that manufacturing grew in August at the highest rate in 14 years. The labor report for last month was also strong at 210,000 new jobs and weekly jobless claims fell with the unemployment rate below 4%. Offsetting the positives was a widening of the trade deficit with Europe and China as the dollar strengthened and tariffs kicked in. The administration resumed talks with Canada on solidifying the North American Free Trade Agreement, but no deal was struck, and the President is again looking to boost tariffs on China to $267 billion.
Here at home the headwinds continue to be political, as we face widening investigations in Washington, ongoing negative headline news and its effects on the mid-term elections. So far, these issues have had little consequence on market sentiment, as the economic and profit fundamentals remain strong. While we will probably see the Federal Reserve moving interest rates higher a couple of times before year-end, the central bank does not appear to be putting the brakes on economic expansion. Corporate earnings remain strong and this week we will hear from conservative choice Oracle Corp. as it reports first quarter results estimated at $0.69 per share vs. last year’s $0.62. There is a lot for investors to worry about, but if the economy and earnings cooperate, and valuations remain reasonable, the bears may have to remain on the defensive.
Here is the answer to last week’s trivia question: London-based energy giant BP plc is reintroducing what gas station brand in select U.S. markets? Amoco, Hess, Sinclair or Cities Service. Answer: Amoco (originally Standard Oil Co. of Indiana), which BP acquired in 1998 and discontinued the Amoco brand in 2001.
Today’s Trivia Question: Which company built 1,172 commuter cars for New York’s Metropolitan Transportation Authority’s two commuter rails – the Long Island Rail Road and Metro-North Railroad? Siemens AG, American Railcar Industries, Bombardier, Inc. or The Greenbrier Cos.