Market update: Stocks tumble following technical breach (10 October 2018)

Stocks tumbled on Wednesday as bond yields held steady at multi-year highs and amid continued concerns about economic and earnings growth prospects. The S&P 500 lost 3.3%, extending its losing streak to five sessions in a row, which is its longest losing streak since 2016. The Dow Jones Industrial Average and the Nasdaq Composite also fell sharply, losing 3.2% and 4.1%, respectively.

At the opening bell, the S&P 500 fell below its 50-day moving average (2879), which has been an area of support for the market this week. Selling continued from there, with the S&P 500 extending its opening loss of 0.5% more than six times over. However, the selling didn't feel fast and panicky; rather, it was somewhat orderly in nature, which underscores the idea that it was largely a risk-reduction effort, whereby market participants are cutting their exposure to stocks, cognizant that earnings growth estimates are at risk with rising interest rates, tariff actions, and higher costs.

Other key technical breaches included the Dow falling below its 50-day moving average, the Nasdaq falling below its 200-day moving average, and the Russell 2000 falling below its 200-day moving average.

High-growth FANG names, which have been key leadership stocks for this bull market, struggled mightily on Wednesday; Netflix (NFLX 325.89, -29.82) lost 8.4%, Amazon (AMZN 1755.25, -115.07) lost 6.2%, Facebook (FB 151.38, -6.52) lost 4.1%, Apple (AAPL 216.36, -10.51) lost 4.6%, and Alphabet (GOOG 1081.22, -57.60) lost 5.1%.

Information technology was the worst-performing S&P sector on Wednesday, tumbling 4.8%, but growth-sensitive, cyclical groups underperformed on the whole, with financials, consumer discretionary, industrials, energy, and communications services all losing between 3.0% and 3.9% apiece. None of the 11 S&P sectors were able to advance on Wednesday, but the defensive-oriented utilities (-0.5%) group did manage to keep its loss in check.

Interestingly, the equity sell off did not lead to higher demand for "risk-free" U.S. Treasuries. In fact, bonds declined with stocks on Wednesday, with investors presumably opting to go to cash instead. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, advanced two basis points to 3.23%, closing near a seven-year high.

Meanwhile, the CBOE Volatility Index, often referred to as the "investor fear gauge", spiked 36.2% to 21.73, its highest level since late March.

Rotation
Some market participants argue that investors are shifting from growth-fueled strategies to value shares, which have been out of favor as shares of growthy, techy companies have soared. Investors tend to turn to overlooked value companies in the later stages of an economic cycle, before a recession, market participants say.

Thursday, Oct 11, 18: Wall Street extends Wednesday's drop

Wall Street extended Wednesday's tumble on Thursday in a volatile day of trading. The major averages settled notably lower, with the S&P 500 losing 2.1%, the Dow Jones Industrial Average falling 2.1%, and the Nasdaq Composite shedding 1.3%. With Thursday marking its sixth straight decline, the S&P 500 is now down 5.5% for the week and is 6.9% below its September 20 record close.

Financial giants JPMorgan Chase (JPM 108.13, -3.34), Citigroup (C 68.38, -1.57), and Wells Fargo (WFC 51.44, -0.99) will unoffically kick off the third quarter earnings season on Friday morning.

Also of note, the CBOE Volatility Index (VIX) spiked once again on Thursday, jumping 11.8% to 25.57, marking its highest level since February.

From a technical standpoint, the S&P 500 got into trouble once again on Thursday, closing below its 200-day moving average (2766) for the first time since March, after breaching its 50-day moving average the day before. The Dow Jones Industrial Average also fell below its 200-day moving average (25140) and the Nasdaq Composite and Russell 2000 stayed below theirs.

US markets close

• 2018-10-12 Friday:  European and US markets 

Market update: Federal Reserve hikes short-term rates by 0.25% (26 September 2018)

The Federal Reserve increased short-term interest rates on Wednesday, as expected, raising the fed funds target range by 25 basis points to 2.00-2.25%.

• Fed hikes interest rates, raises its economic outlook and drops 'accommodative' language
• Fed's Powell: Lack of 'accomodative' language a sign policy inline with expectations

Stocks were up modestly ahead of the release of the Fed's decision, which crossed the wires at 2:00 PM ET, and extended gains after the central bank removed the word 'accommodative' from its policy statement. However, that initial move was reversed, and then some, following a post-decision press conference from Fed Chairman Jerome Powell, during which he said the language change didn't signal a change in the Fed's path for rate hikes.

The S&P 500 was up as much as 0.5% on Wednesday but fell sharply in the final minutes of the session to finish with a loss of 0.3%. The tech-heavy Nasdaq Composite ended lower by 0.2%, the blue-chip Dow Jones Industrial Average finished lower by 0.4%, and the small-cap Russell 2000 lost 1.0%.

As for rate-hike projections, the Fed still appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 79.2%. Beyond 2018, the Fed's dot plot showed expectations for three rate hikes in 2019 (unchanged from June) and one in 2020 (also unchanged from June).

U.S. Treasury yields fell following the Fed's policy announcement, although the 2-yr yield managed to close unchanged at 2.83%. The yield on the benchmark 10-yr Treasury note dropped four basis points to 3.06%. In currencies, the U.S. Dollar Index finished +0.2% at 93.90, but was volatile after the release.

The drop in Treasury yields weighed on the rate-sensitive financial sector, which finished at the bottom of the sector standings with a loss of 1.3%. The energy sector (-1.0%) was another notable laggard, dropping in tandem with the price of crude oil; WTI crude futures finished -1.0% at $71.58/bbl.

Market update : The market busts out of 7-month long correction (27 August 2018)

Wall Street extended Friday's push into record territory on Monday, with the S&P 500 registering its second straight record close.  President Donald Trump said the U.S. has reached an agreement with Mexico to enter into a new trade deal, calling it the U.S.-Mexico trade pact.  With a U.S.-Mexico deal in place, Canada will now come to the negotiating table as the three nations look to fully replace their three-way NAFTA deal.

• S&P 500 today's close: 2896;  Jan 26 close:   2872
• Nasdaq Composite +16.1% YTD
• Russell 2000 +12.6% YTD
• S&P 500 +8.4% YTD
• Dow Jones Industrial Average +5.4% YTD

$SPY since the 2016 Election (22 months) with Fibonacci retracement.

A table showing the performance of various asset classes since the prior S&P 500 high on 1/26.  We also show YTD and QTD performance.  As you'll see, US equities have been dramatically outperforming international stocks.

Market update : Turkish Lira Rattles Investors Around the Globe (10 August 2018)

The S&P 500 started the week on a positive note, extending last week's winning streak and coming within 0.5% of its January 26 record high (26-Jan-18 close 2872) . However, the index struggled in the back half of the week, especially on Friday amid a sharp drop in the Turkish lira, eventually settling with a weekly loss of 0.3% -- its first weekly loss since late June.

• Turkey is now facing the most serious financial crisis since Mr Erdogan took office 15 years ago.
• The decline in the Turkish lira and rising borrowing costs cause a big headache for many Turkish companies, as they have borrowed in foreign currency despite receiving revenues in local currency.
• In a tumultuous day on the financial markets, the lira tumbled by 14.3% against the dollar to TL6.47 from the previous New York close. At one stage it fell as much as 18.5%. The currency has lost more than 40% of its value so far this year. The lira’s implosion rippled across other emerging market currencies, pulling the likes of the South African rand, the Argentine peso and the Russian rouble lower by between 1.5 and 3.5%.

$SPY since the 2016 Election (21 months) with Fibonacci retracement. 

$SPX - 6 months

President Trump added to the pressure when he made a shock announcement on Twitter. “I have just authorised a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar!” he tweeted. “Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!”

Turkish lira

Mr Erdogan urged Turks to stand firm and defend their currency. “If there is anyone who has dollars, euros or gold under the pillow, he should go and convert this at the bank,” Mr Erdogan said.

He also held talks by telephone with Russian president Vladimir Putin to discuss economic and commercial ties.

Here's how Turkey's currency has fallen against the dollar in the past 10 years – and some reasons for the fall. 

Euro banks

• The Financial Times reported that the European Central Bank is concerned about eurozone banks' exposure to Turkey because of the tanking lira. The ECB declined to comment.
• Data from the Bank for International Settlements show eurozone banks have loans worth over $150 billion in Turkey. Spanish, French and Italian banks are the most exposed.
• Shares in some of Europe's biggest banks were hard hit on Friday. Italy's UniCredit (UNCFF) shed 5.6% and Spanish lender BBVA (BFR) dropped 5.5%. France's BNP Paribas (BNPQF) was off by 4.3% and Deutsche Bank (DB) fell 5.3%.

The  Evangelical preacher  Andrew Brunson was  released from prison in July 2018.  The Trump administration had thought that it had secured a deal to release the pastor, but Turkey instead put him under house arrest, which angered Washington.

Recep Tayyip Erdogan, president and former prime minister of Turkey.

Under Erdogan and his ruling Justice and Development Party (AKP), Turkey has lifted restrictions on public expression of religion, including ending the ban on women wearing Islamic-style headscarves.

• Born: February 26, 1954;  Istanbul, Turkey
• 2003-2014 - Serves as prime minister.
• August 10, 2014 - Erdogan is elected president during the first-ever direct elections.
• July 15-16, 2016 - During an attempted coup by a faction of the military, at least 161 people are killed and 1,140 wounded. Erdogan addresses the nation via FaceTime and urges people to take to the streets to stand up to the military faction behind the uprising. He blames the coup attempt on cleric and rival Fethullah Gulen, who lives in self-imposed exile in Pennsylvania.
• June 24, 2018 - Is re-elected president.
• The Turkish economy has expanded rapidly this year compared with 2017. But its growth in recent years has been fueled by construction financed largely by foreign investors.
• The European Central Bank expressed concern about the country when President Recep Tayyip Erdogan was re-elected in a snap vote in June and whose growing power has raised questions about the independence of the country’s central bank.

U.S. - Turkey grievances

• An evangelical preacher, Mr. Brunson, who has lived in Turkey for 23 years, is one of about 20 Americans, including a NASA scientist and chemistry professor from Pennsylvania, who have been swept up in Mr. Erdogan’s crackdown since the failed coup two years ago. 
• Brunson who was applying for Turkish permanent residency, having lived there 23 years, was imprisoned on October 7, 2016, accused of being a member of the Gülen movement, which the Turkish government considers to be a terrorist organization.  On July 26, 2018, US Vice President Pence called on Turkish President Recep Tayyip Erdogan to release Brunson or face significant sanctions.  President Trump has raised the pressure over the issue because he wants to appeal to Evangelical voters ahead of November midterm elections.

• Trump's abandonment of the Iran nuclear deal is another sore point; nearly half of Turkey's oil imports come from Iran, and the re-imposition of sanctions against Iran hurts Turkey's economy.
• American relations with Turkey were further aggravated by Mr. Erdogan’s embrace of Russia, particularly when Turkey signed a deal in  September 2017 to purchase Russia’s S-400 surface-to-air-missile system. The deal would mean Russian military technicians operating in NATO’s backyard. What especially irked the United States was that Turkey had also been in the midst of purchasing American F-35 joint strike fighters. Congress has since moved to block deliveries unless Turkey cancels the Russia deal.

• Mr. Erdogan says the 2016 coup was orchestrated from the United States, and specifically by a Muslim cleric, Fethullah Gulen, from his self-imposed exile in Pennsylvania. Turkish authorities have demanded that he be extradited, something American officials have dismissed, and the detained Americans are widely seen as bargaining chips.
• American support for Kurds and backing of Kurdish terrorists in Syria, the number one enemy of Turks, has galvanized Turks against the US, now broadly seen as Turkey's enemy. America's gungho pro-Saudi/pro-Israeli pivot & participation in the ongoing genocide in Yemen isn't helping; Turkey sees itself as the moderate leader of the Islamic world and Saudi Arabia as a dangerous rival. 

Market update (10 February 2018)

The bottom line:  So far, it looks like a technically-driven correction to remove excess exuberance from the Trump rally.

Trump rally

• 8-Nov-16 close 2139
• 26-Jan-18 close 2872 Gain: 733 pts  or 34.27%   (15 months) 

$SPY since the Election (15 months) with Fibonacci retracement.  (Fri 9 Feb 2018)

Fibonacci retracement     S&P 500
     23.60%               2,699.01
     38.20%               2,591.99
     50%                    2,505.50 (**)
     61.80%               2,419.01

(**)The 50% retracement is not based on a Fibonacci number. Instead, this number stems from Dow Theory's assertion that the averages often retrace half their prior move.

Fri 9 Feb 2018: 200dma  2539;  low 2532; close 2619
A major test for the market here as the S&P 500 flirts with its 200-day simple moving average (2539).   Today's low was 2532.
A test of support at the 200-day simple moving average could open the door to another flood of sell orders... OR... it could open the door to a strong rebound effort.

The last test of the 200dma came in early November 2016. It held and it was off to the races after that following the presidential election.

SPY - 10 months

$SPX - 6 months

The equity market dropped sharply this week, with the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite losing around 5.0% apiece in volatile trading. Sizable gains on Tuesday and Friday helped keep losses somewhat in check, but they couldn't keep the major indices positive for the year.  The three averages are down between 0.4% and 2.1% year to date.

This week's selling was related to fears about rising interest rates, and the realization that stocks have gone too far, too fast, but it was a collective de-risking effort following the implosion of short volatility ETFs that acted as the expedient for broad-based and indiscriminate selling activity.  The S&P 500 soared 7.5% in the first four weeks of 2018 on top of last year's 19.4% rally.

Technical, mechanical, and psychological forces all came together to knock back the market in an abrupt fashion.

The S&P 500 breached its 50-day simple moving average for the first time in five months. Weak-handed investors were consistently shaken out of "buy-the-dip" trades this week, sending stocks, and investor sentiment, even lower.

Meanwhile, the CBOE Volatility Index (VIX), often referred to as the "investor fear gauge," ended the week higher by 66.7% at 28.86.

All 11 S&P 500 sectors finished the week in the red, with losses ranging between 2.8% (utilities) and 8.5% (energy). In general, cyclical sectors--including the heavily-weighted financial sector (-5.8%)--underperformed their countercyclical peers.

The energy sector struggled as West Texas Intermediate crude futures dropped 9.5% to $59.23 per barrel--their lowest level since the end of December.

Overseas, equity markets in Asia and Europe finished the week solidly lower, following Wall Street's lead.

China's Shanghai Composite and Hong Kong's Hang Seng led the retreat in Asia, dropping 9.5% apiece, while Germany's DAX and France's CAC set the pace in Europe with losses of 5.3% apiece.

The market still anticipates that the next rate hike will occur at the March FOMC meeting as Fed officials minimized this week's sell off, continuing to emphasize a path of gradual rate increases. The CME FedWatch Tool places the chances of a March rate hike at 71.9%, virtually unchanged from last week's 76.1%.