It was not a fun week as investors shied away from equities to the tune of a 3% decline in the Dow Industrials and nearly 4% for the S&P 500 and Nasdaq Composite. All the major market sectors had down arrows, notably energy stocks with a 7.4% selloff, telecoms -5.5%, and industrial and basic material stocks were negative by about 5%. The transports were also weak giving back 4.5% and failed to bounce off its long-term moving average. The technical picture was particularly troubling with 3 stocks declining on the NYSE for every one gaining. 908 stocks hit new 52-week lows compared to only 58 new highs as volume picked up. Of the components of the S&P 500, about half are down some 20% from their 52-week highs. Earnings have been reasonably good, but guidance has moderated as several companies are pointing to tariff related input costs as an issue of concern. Other than shares of Apple, the so-called FAANG stocks were particularly hard hit with Amazon.com shedding 8%, Google’s Alphabet about 4%, Netflix off 10% and Facebook hitting a 52-week low. Offsetting stocks, gold has moved higher and settled on Friday at $1,232,54, its highest level since mid-July.
October is usually a volatile month, but why are investors so worried? In part, it’s due to the Federal Reserve’s shifting policy position. With unemployment low and inflation up at the Fed’s 2% target, the bankers seem sufficiently comfortable to move toward a normalized monetary structure that should give it the wherewithal to tackle the next business downturn. Also, there are uncertainties regarding next week’s elections and fears about the global outlook, particularly in China. While current earnings have been strong, there are concerns about 2019, when comparisons will be tougher. Finally, the strong dollar against most major currencies is not helping the big multi-national names.
The fundamentals, however, remain sound, suggesting that equities should be able to overcome the occasional headwinds, such as we are experiencing now. While market pundits are divided, long-term investors should stick with their financial objectives and find some comfort in reaping the higher dividends being paid by many companies.
Here is the answer to last week’s trivia question: Diversified financial management and mutual fund firm Invesco announced plans this week to purchase Oppenheimer Funds for $5.7 billion. Oppenheimer is owned by? The Bank of New York Mellon, State Street Corp., Blackrock or Massachusetts Mutual Life Insurance. Answer: Massachusetts Mutual Life Insurance.
Today’s Trivia Question: Over the past three years, Apple, Inc. has secretly been working on the development of an electric car. What is the code name for the project? iCar, MacWheels, Titan or CarPlay.