(Justin Vaughn, Editor, Options Trading Report)
Friday ended the week on a sour note; the indexes were awful as the major sell-off carried the tech heavy Nasdaq Composite down 417 points, closing at 16,776, or off 3.4%. The Conservative Dow Jones Industrial Average was more of the same, losing 1.5% of its value. The S&P 500 suffered, losing 1.8%, as the indexes lost billions. The 10-year Treasury yield dropped, falling to below 2020 levels as the demand for “government bonds” was strong. The small cap Russell 2000 value index suffered also, finishing down 6.7% for the week, yielding to the pressure of the sell-off. “Maybe things weren’t as rosy as we thought they were,” said Eric Merlis, co-head of global markets at Citizens Financial Group. Friday’s jobs report stung the market as investors intensified concerns were reality, as pressure on the job market poised questions on future economic growth. Economists had predicted the added jobs number to be much higher than the reported 114,000 number, throwing the market into deep concern.
Stocks collapsed on Monday with the indexes shedding billions, as the plunge was led by high techs and the chipmakers and Magnificent 7 favorites. The Dow Jones Industrial Average retreated near 1,000 points with the tech heavy Nasdaq Composite dropping 600 points, wiping out heavy profits. Fears of a weakening economy are becoming more realistic as the jobs report Friday was a ‘bell ringer’ for a much needed overdue rate hike. Investors and traders have lost confidence, ‘giving-up’ on the market, with growing concerns of a recession now in their sights. Exchanges worldwide were severely affected, with the Tokyo Nikkei Exchange, falling 12%, the biggest drop since 1987. The sell-off, originating in Asia, was the result of the Bank of Japan raising interest rates. ‘Hot economic data’ in the U.S. triggered the start of a massive sell-off. The Japanese Yen has been in a struggle with the dollar for nearly 30 years with little monetary control by their fiscal ministers. The carnage was across the board as nearly every sector of all indexes was affected. Techs took the biggest hit, with the Nasdaq Composite falling 3.4%. As mentioned above the standard bearer Dow Jones Industrial Average, composed of 30 diversely selected ‘Blue Chips’, representing a slice of U.S. companies was significantly affected, dropping near 1000 points. Treasury yields on Tuesday, surprisingly turned higher, closing at 3.887%, up from Monday’s 3.783%, with the 2-year edging up to 3.88%, good signs that the growth factor is remaining. Both Treasuries are holding firm, giving safe-haven to concerned investors and those looking to ‘park profits.’ Interestingly, all ‘Magnificent 7’ stocks were down at least 2.5% across the board for the day.
U.S. Stocks rebounded Tuesday, with the Dow Jones up 222 points, the Nasdaq up 199 points, and the S&P 500 a bit up. Investors did see some light-at-the -end-of-the-tunnel as the overall markets gained 20-25%, softening the debacle Monday, and hopefully getting back to a positive market environment.
Winners disappeared Wednesday as the market took a full turn by mid-day, unable to sustain any kind of a ‘bull.’ The Dow Jones Industrial Average gave up 250 points, pretty much all that was gained Tuesday, as inflation fears began creeping in. Wall Street’s “Fear Gauge” (VIX) which surged to the 60’s on Monday trimmed back Wednesday to the 28 level. Stocks in all 4 indexes jumped significantly Thursday plowing back massive take-aways lost Monday. The steady-eddy Dow Jones was up 650 points while the tech-laden Nasdaq spurted 2.9%, with the S&P 500 finishing up 2.3%.
RUMBLINGS ON THE STREET
Steven Blitz, chief U.S. economist at Global Data TS Lombard, WSJ Last week, “the whole Fed Committee was working on the assumption that the economy is going to look in September the way it did last week, and you could do the usual slow shuffle to cut rates. The markets are speaking to the Fed. They’re telling the Fed, ‘you’re too tight, and no, you can’t presume that everything is going to roll along merrily while you take your time to cut.’ “
Rick Reader, Blackrock’s chief investment officer of global fixed income, WSJ Friday’s job report was “the first clear sign of employment slowing across virtually every metric,” said Mr. Reader. “The Fed-funds rate is clearly too restrictive relative to inflation that is trending in the low 2’s with slack building in the labor force.”
Gregory Daco, chief economist at Ernst & Young, WSJ “With a large chunk of world consumer spending under pressure, companies now need to be more creative about avenues to generate revenue growth.”
Thorne Perkin, president of multifamily office Pap;markou Wellner Perkin, WSJ “It wouldn’t surprise me at all if we see another downdraft in the markets. They’re just trying to find their way,” he said. “Big picture, we are long term bullish.”