Stocks are Ready for a Reboot and Nowhere Near a Bear Market, Says this Trader

After a period of mostly downbeat action, a risk-on mood has taken shape Tuesday, after Goldman and other big corporate names sprinkled around some earnings cheer.

Some investors may still be rattled by last week’s mini meltdown. Perhaps in a bid to calm any uneasy future retirees, Charles Schwab SCHW has been steering clients to a chart from earlier in the year, which shows how three types of investors fared during the past four decades of investing.

There is the stalwart, who stayed the course on his investments no matter what; the reactor who pulled out money in 2008 and stayed out (depicted in red) and the waffler (blue), who moved money out after any downbeat year. The latter two kept saving 10% of their salary. Guess who came out ahead? Yep, the stalwart:

More of that keep-calm-and-invest-on advice comes from our call of the day, provided by Urban Carmel, the writer behind the Fat Pitch blog and ex-president of UBS Securities in Asia.

“This might feel like the start of a bear market, but that is the least likely outcome,” says Carmel, who suggests investors get ready for higher prices in the weeks and months ahead.

Supporting that perspective, he points to a still-robust U.S. economic expansion and macroeconomic data that have historically weakened before a final equity top, contrary to what many investors might think. Based on that, he doesn’t believe that the stock market will hit a peak (implying a pronounced downturn is imminent) before the end of 2018.

Carmel backs up his view by pointing to momentum in the S&P 500, breadth and sentiment washing out, the latter of which has seen investors flooding into ETFs that bet on equity falls. He says this chart from Dana Lyons at J. Lyons Fund Management as evidence of that:

 

Still, Carmel says investors should stay alert as the recent selloff hasn’t entirely run its course.

Although, he believes that stocks are set to rise, a “topping pattern” under way for the S&P 500, in which prices weaken before they reverse, is one piece of evidence that Carmel references to support his call for near-term caution. That the broad-market index has just logged a three straight weeks of declines—something that has happened 20 times since 2003—also underscores the market’s fragility, he said. As the following chart shows, in past times that the S&P 500 suffered such a losing streak, the low was eventually retested within the following seven weeks:

Back in May, he was cautioning against seasonal selling, warning that investors could be buying back at higher prices in November. That’s a call that proved to be spot on, with the S&P 500 up by about 4.6% since that point.

The market

A hefty rally is underway, with the Nasdaq COMP, S&P SPX, and Dow DJIA well in the black.

Gold US:GCU8 is up a little, while crude US:CLU8 is off and the dollar DXY has dropped against the euro EURUSD and the pound GBPUSD.

Check out the Market Snapshot column for the latest action.

Europe SXXP is moving higher and Asian markets ADOW had a mixed session.

The chart

Our chart of the day comes from the latest Bank of America Merrill Lynch fund manager survey (from Oct. 5 to 11), which shows that global growth expectations among money managers has slumped to the lowest levels since November of 2008.

Now, how can growth optimism be so gloomy when the U.S. is on a boom? As BAML analysts explain, the Fed is causing some hopes over U.S. growth to “wane.”

The buzz

Walmart WMT is dipping after cutting its 2019 adjusted earnings outlook. But Goldman Sachs GS and Morgan Stanley MS, after both banks topped estimates, Domino’s Pizza DPZ, is down after a revenue miss. UnitedHealth UNH, BlackRock BLK, Johnson & Johnson JNJ results are all rolling in this morning, with Netflix NFLX due after the close.

Adobe ADBE,  is up after reaffirming profit targets.

U.S. Sec. of State Mike Pompeo has just arrived in Riyadh to discuss the disappearance of missing dissident journalist Jamal Khashoggi. Some suspect the Saudis will say Khashoggi died of an interrogation that went badly wrong, or “rogue killers,” as suggested by POTUS on Monday.

Tossing shade at big tech rivals, Amazon.com AMZN CEO Jeff Bezos told a Wired audience that he’s not going to turn down working with the Pentagon. At the same conference, Twitter CEO Jack Dorsey said his company needs to work on filter bubbles, and Google’s GOOGL chief executive Sundar Pichai defended his company’s plan to explore a search engine tailored for users in China.

Microsoft MSFT co-founder Paul Allen is dead at 65 after battling cancer a second time.

Industrial production, job openings and a home builders’ index are all on tap this morning on the data front.

Everything you’ve ever wanted to know, (but were afraid to ask) about investing in pot stocks. Heard of Canopy Growth WEED? It is the industry’s $4 billion gorilla. Plus, Tilray’s TLRY global ambitions and red flags around IGC.

Article and media were originally published by Barbara Kollmeyer at marketwatch.com

 


Here’s Why Stock-Market Investors Suddenly Freaked Out Over Rising Bond Yields This Week

An October fright comes courtesy of rising Treasury yields.

It would be fun to be reincarnated as the bond market because “you can intimidate anybody,” Democratic political strategist James Carville once quipped.

A bond market selloff that pushed long-dated yields to more-than-seven-year high certainly appeared to give stock-market investors a fright this week.

In our call of the day, economist Oliver Jones of Capital Economics argues that investors are right to be worried and that the market action shows they are starting to factor in the prospect of a U.S. economic slowdown in response to tighter monetary policy by the Federal Reserve. That slowdown, which he expects to take hold in 2019, would also promise to drag down stocks and bond yields.

There was no clear catalyst for the Wednesday selloff that sent the S&P 500 SPX and the Dow Jones Industrial Average DJIA to their biggest one-day drops since February and the tech-heavy Nasdaq Composite COMP to its biggest plunge since June 2016. And that selloff was followed by another rout Thursday that left the Dow with a 2-day loss of nearly 1,400 points.

But a number of investors and analysts have argued that the stock market’s October weakness marked investor unease over a long-delayed jump in long-dated bond yields — a jump that briefly took the yield on the 10-year Treasury note TMUBMUSD10Y above 3.25% for the first time since 2011 on Tuesday. Yields and debt prices move in opposite directions.

In a note, Jones observed that, until recently, rising Treasury yields tended to coincide with a rising S&P 500 and outperformance by cyclical stocks, with both bond yields and equities pushed higher by good economic news.

“But this week’s drop in the index and marked underperformance of cyclical sectors — which has had no obvious trigger in the economic data — has come in the wake of a 40 [basis point] surge in the 10-year Treasury yield since mid-August,” Jones said. The phenomenon indicates investors are starting to factor in the possibility that higher rates could slow the economy sooner rather than later, he said.

Jones contends a U.S. economic slowdown “is no more than a few quarters away” and that Treasury yields and the S&P 500 will both likely end 2019 well below where they are now. Capital Economics is looking for the S&P 500 to drop around 15% from its late September record. And given the global rout that followed Wednesday’s U.S. selloff, that probably means weakness for other equity markets, too, he said. As for Treasurys, slower growth would likely cause the Fed to bring its tightening cycle to an end, with the 10-year yield sinking to around 2.5%.

The chart

While economists debate the potential impact of President Trump’s repeated criticisms of the Federal Reserve on the independence of the central bank, there’s no doubt the possibility the Fed will deliver another dreaded, expansion-ending policy mistake is on investors’ radar.

Of course, the latest survey by RBC Capital Markets didn’t ask investors whether they think the Fed is “crazy,” “loco,” or getting “a little too cute” — all charges that Trump leveled at Fed Chairman Jerome Powell and his fellow policy makers. But it did find that more than half of respondents see a high or moderate risk of a policy error, not far off the results of the bank’s June poll, as shown in the chart below.

 

The market

Global equity markets are attempting an end-of-week bounce after the Wall Street-led drubbing. U.S. stock-index futures are pointing toward a solidly higher open as investors turn their attention to earnings, with Dow futures YMZ8 up 238 points, or 1% and S&P 500 futures ESZ8 rising 1.1%. Nasdaq-100 futures NQZ8 are 1.6% higher. Stocks were still set to log their biggest weekly decline since March, however.

Asian stocks erased a soft open to end broadly higher, but still saw heavy weekly declines. European equities were also posting gains Friday.

The buzz

Earnings season began in earnest Friday morning, with results due from banking heavyweight JPMorgan Chase & Co. JPM, with Citigroup Inc. C and Wells Fargo & Co. WFC.

JPMorgan was first out of the gate, beating profit and revenue estimates. Shares rose 1.3%.

Analysts are skeptical that third-quarter earnings season will provide the fuel needed to undo the sector’s underperformance in 2018.

U.S. Treasury staff finds China isn’t manipulating the yuan, ahead of the release expected next week of the department’s twice-yearly currency report, according to Bloomberg.

Facebook Inc. FB  removed hundreds of U.S. pages and accounts it said were spreading false or misleading political content ahead of next month’s midterm elections. The move was aimed at stopping misinformation spread primarily by Americans rather than coordinated efforts by Russians.

Turkey may release detained U.S. pastor Andrew Brunson on Friday, a move that would help mend relations between Washington and Ankara.

President Donald Trump is considering as many as five candidates to replace Attorney General Jeff Sessions, on the assumption he will leave his post later this year.

China expects the trade spat and other factors to slow China’s foreign trade growth starting in the fourth quarter, but the latest data show exports to the U.S. surged 16.6% in September from a year earlier.

Hurricane Michael is blamed for at least six deaths. At least 1 million power customers were offline Thursday in Florida, Alabama, Georgia, the Carolinas and Virginia, according to local utilities.

Kanye West urged Trump to ditch Air Force One and get onboard with iPlane One.

Article and media were originally published by William Watts at marketwatch.com


Opinion: Amazon vs. Apple — Which Should You Own if You Can Only Own One?

Both Big Tech companies are on the move, but in a comparison of stock-market returns, products and profits, one has an edge

Investors have been increasingly reliant on Big Tech stocks in recent years. But not every tech company is created equal.

The two biggest technology companies — Apple Inc. AAPL and Amazon.com AMZN — are different in many ways, yet are sometimes mentioned in the same sentence simply because of their dominance and size.

In August, Apple became the first company in history whose market capitalization topped $1 trillion. Amazon followed soon after in early September, though has since fallen a bit.

Many investors are eager to own both of those companies. But should they?

Here’s a look at both of these trillion-dollar tech names, and which one is better. After all, you might not want both mega-caps to dominate your portfolio.

Share momentum — winner: Amazon

Apple and Amazon shares have been undeniable winners, blowing away the broader returns of the S&P 500 SPX across many time periods. But Amazon’s steep ascent has outperformed Apple in a big way. Just look at these returns over various time periods:

Price targets — winner: Amazon

Forget about the past, though; what does the “smart money” expect from both of these names in the future? Well, Stifel and Jeffries just put the same target of $2,525 on Amazon at the end of September for roughly 20% upside after its already impressive run of more than 60% this year.

Apple forecasts are more subdued, with some of the more recent calls including Nomura’s and J.P. Morgan’s $215 targets — slightly below current levels. This is not to say investors are expecting a crash in Apple’s stock, but the disparity is telling.

Current valuation — winner: Apple

With a forward price-to-earnings (P/E) ratio that’s less than 17, Apple is actually trading for less of a premium on future profits than the typical stock; the S&P 500 has an average forward P/E of about 18 at present, and the tech-heavy Nasdaq 100 NDX boasts an average P/E of almost 22.

Amazon has long focused on growth over profit, and trades for almost 80 times forward earnings. It’s also worth noting that Apple’s nearly $1.1 trillion in market value is built in large part on roughly $250 billion in cash and investments — a big backstop for investors.

Recent product launches — winner: Apple

Both Apple and Amazon made big splashes lately with new product launches — Apple, with a new suite of smartphones and an update to its smart watch, and Amazon with a new line of its Echo voice-assistant devices and an upgrade to its Fire TV streaming offerings.

However, while it’s undeniably important for Amazon to keep innovating and pushing the envelope in the consumer-tech areas where it’s increasingly a player, nobody does hardware like Apple. Industry estimates currently predict 85 million units sold by year-end, with all of its newest smartphones carrying a four-figure price tag. Amazon is still very much experimenting and courting curious customers with its launches, while Apple is making material profits.

Earnings results — winner: Apple

Apple blew the doors off its second-quarter earnings report in July, beating the top and bottom lines and guiding above Wall Street’s expectations on revenue. The report was powerful, considering the relatively weak iPhone sales in advance of a refreshed product line, and hints at continued momentum for sales and profits in the coming quarters. The shares added about 10% across the next few trading days after that July report.

Amazon’s report also offered a lot to cheer about. The company posted its biggest-ever quarterly profit, thanks to less spending, trumping Wall Street expectations. However, revenue did slightly miss the mark, and it’s worth noting that the big bump in profitability may not be a long-term trend because of its reliance on less spending for efforts such as hiring.

Both had good news in the second quarter, but Apple’s is more encouraging going into third-quarter earnings in a few weeks.

Executive leadership — dead heat

It’s incredibly difficult to compare Apple CEO Tim Cook with Amazon CEO Jeff Bezos. There are reasons to like both execs and their admittedly different resumes, with one a creative force and the other an operations expert, but it’s impossible to definitively say one is “better.”

The 54-year-old Bezos was in on the ground floor at Amazon and has been a tech icon for over two decades. He has the typical brash management style we have come to expect from Silicon Valley execs of his generation. Bezos may be a bit closed-mouthed about Amazon operations and a bit less concerned with the bottom line, but you can’t deny the success of his hard-charging approach at new tech frontiers.

Apple’s Cook, on the other hand, wasn’t a company founder or a product guru. Instead, he was an operations guy at PC shop Compaq whom Steve Jobs hired in the late 1990s to bring discipline to Apple. Cook, 57 years old, played an integral role in streamlining manufacturing and distribution during the company’s troubled years, and his expertise has allowed Apple to thrive at its amazing scale to this day.

Verdict — winner: Apple

I’m certainly not betting against Amazon. The e-commerce king has a lot going for it, and continues to stay innovative. However, Apple has a ton more cash (and a dividend for shareholders) and seems to be on an upswing with its new product launches and loyal installed user base.

Amazon is undeniably dynamic, but on Wall Street that frequently means moves in both directions. Maybe I’m chicken, but I’ll take the reliability of Apple’s balance sheet over the volatility, but big potential, offered by Amazon.

Article and media were originally published by Jeff Reeves at marketwatch.com

 


Should Investors Fear October, a Historic ‘Jinx Month’ For Stocks?

While October is a middle-of-the-road month, based on historic seasonality, it is extremely strong in midterm years

The month of September hasn’t lived up to its reputation for historical weakness in the U.S. stock market, which could provide some comfort to superstitious investors looking ahead to October, a month that is notable for some historic crashes and other turmoil.

According to the Stock Trader’s Almanac, October is known as “the jinx month” due to the number of major selloffs that have occurred in the past over the month. There were “crashes in 1929 and 1987,” the Almanac read, along with “the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989, and the meltdown in 2008.”

Such rough years have made October a relatively weaker month for the major averages, even as it is typically a positive one, especially in midterm-election years.

Historically speaking, the Dow Jones Industrial Average DJIA rises an average of 0.6% over the month, a move that makes October the seventh-best of the year. Over the past 67 years, October has been positive for the blue-chip average 40 times and negative in 27 times.

The S&P 500 SPX typically rises 0.9% over the month, which is also good enough for seventh place, based on historical averages. The benchmark index has the same ratio of positive Octobers to negative ones as the Dow.

For the Nasdaq Composite Index COMP October stands as the eighth-best month of the year, based on data that goes back 46 years. It has historically risen 0.7% over the month, and October has been positive for the Nasdaq in 25 of the past 46 years.

Should performance hew to these historical averages in 2018, the S&P’s gain would be enough to take the index back to record levels, based on where it traded on Wednesday (there are still two full trading days left before the end of the month). The index is currently 0.6% below its intraday record.

The Dow is 0.9% below its intraday peak, meaning the average October move wouldn’t be enough to take it into uncharted territory. The same holds for the Nasdaq, currently 1.2% below its own record.

In a positive sign for investors, however, midterm years tend to correspond with extremely strong Octobers, according to the Almanac. While the Dow rises 0.6% in October overall, it jumps a far stronger 3.1% in midterm years. The S&P climbs 3.3% in midterm Octobers, more than three times the average overall gain, while the Nasdaq jumps 4.2%, six times its overall average.

For both the Dow and the S&P, October is the best month of the year in midterm years, while it is the sixth-best for the Nasdaq.

In another quirk of seasonality, October is the most volatile month of the year, as measured by the standard deviation for the major indexes. For all Octobers since 1896, when the Dow was created, the standard deviation of the Dow’s daily changes has been 1.44%. That compares to 1.05% for all months other than October.

So far in September, the Dow is up 2.2%, the S&P is up 0.7%, and the Nasdaq has lost 0.9%.

For both the Dow and the S&P, the performance bucks a historic trend. According to the Almanac, September has historically been the worst month of the year for all the major indexes. On average, the Dow falls 0.8% over the course of the month, or 1% in midterm election years. The S&P drops 0.5%, typically, as does the Nasdaq. (For midterm years, the average shifts to a decline of 0.4% for the S&P and 0.8% for the Nasdaq.)

Article was originally published by Ryan Vlastelica at marketwatch.com


Dow Set for Best Week Since July as Stock Futures Imply Deeper Push into Record Territory

Dow, S&P 500 coming off records that was blue-chip index’s first since January

U.S. stock-index futures pointed to a slightly higher open on Friday, indicating that Wall Street would extend its recent uptrend and push further into all-time highs.

Where are the major benchmarks trading?

Futures for the Dow Jones Industrial Average YMU8 advanced 44 points, or 0.2%, to 26,771. S&P 500 futures ESU8 gained 4 points, or 0.1%, to 2,943.50. Nasdaq-100 futures NQU8 rose 15 points, or 0.2%, to 7,623.75.

Both the Dow and the S&P 500 ended at records on Thursday, the culmination of a lengthy stretch of steady moves higher. The S&P 500 has risen in eight of the past nine sessions, as of Thursday’s close, while the Dow has risen in seven of the past eight.

The Dow’s record was notable as it was the first for the blue-chip average since January. Both the S&P and the Nasdaq have hit multiple records over the past few months, thanks in large part to the outperformance of technology and internet stocks. While Apple fueled the Dow’s advance to all-time highs on Thursday, this is a sector the average has less exposure to, a factor that has limited its gains until recently, when industrial stocks have started to lead the market.

For the week, the Dow DJIA is up 1.9% and on track for its biggest weekly percentage gain since July. The S&P SPX is up 0.9%. Both the Dow and the S&P are on track for their second straight weekly gain, as well as their 10th positive week of the past 12. The Nasdaq COMP is looking at a weekly gain of 0.2%.

What’s driving the market?

Markets have been grinding higher in a low-volatility market for several weeks. The gains have largely been supported by improving economic data, which have pointed to strong economic fundamentals, particularly in contrast to other regions, where stocks have been struggling.

On Thursday, gains came as jobless claims dropped to their lowest since November 1969, a sign of an extremely strong labor market. Separately, the Philadelphia Fed manufacturing index jumped more than expected in September, while an index of leading economic indicators suggested the U.S. economy could look forward to 3% economic growth in the second half of 2018.

On Friday, Markit will release reports on how both the manufacturing and the services sectors fared in September. The data will be released at 9:45 a.m. ET.

These signs of economic strength have been enough for investors to ignore repeated signs of escalating tensions between the U.S. and China — among other regions — on trade policy. President Donald Trump has announced nearly $500 billion in tariffs on Chinese goods this week; China retaliated with measures of its own and said it would introduce more if the U.S. tariffs take effect.

While many investors are concerned that the trade issue could escalate into a full-blown trade war, they have so far been heartened by the fact that the issue hasn’t shown much impact in economic data or corporate results. Furthermore, some market watchers have said that recent developments haven’t been as severe as expected, leaving room for optimism.

South Korean Finance Minister Kim Dong-yeon expressed optimism about signing a revised U.S. free-trade pact into law, though lawmakers in Seoul have threatened to block the deal if Washington imposes new tariffs on Korean autos and auto parts.

What are market analysts saying?

“We don’t have a full-out trade war, and at this point, most people understand the impact of what’s happened so far won’t be too big on margins. And since earnings and revenue growth are as high as they’ve ever been, it’s perfectly fair for stocks to be at records,” said Peter Lazaroff, co-chief investment officer at Plancorp, which has $3.9 billion in assets.

“However, given that valuations are pretty high, the prospect of our getting a pullback should be at the forefront of investors’s minds. That would just be part of a healthy, functioning market, however. Overall markets aren’t euphoric or complacent about the risks out there.”

What stocks are in focus?

Micron Technology Inc. MU late Thursday reported strong quarterly results, though it gave an outlook that was below expectations. The results could spark broader weakness in the chip space if it leads to concerns that the sector’s sky-high growth could be coming to an end.

Adobe Systems Inc. ADBE agreed to buy software maker Marketo from a private-equity firm for $4.75 billion.

AT&T Inc. T rose 1.4% in premarket trading after UBS upgraded the stock to buy.

GTx Inc. GTXI plummeted more than 90% in premarket trading after the company said its therapy intended for post-menopausal women with stress urinary incontinence did not meet the primary endpoint in a phase 2 clinical trial.

Medtronic PLC MDT said it would buy Mazor Robotics Ltd. MZOR for $1.64 billion.

Wells Fargo & Co. WFC late Thursday said it would reduce jobs as part of its “ongoing transformation” to address industry trends and changes in customer behavior.

The Wall Street Journal reported that days after the Trump administration instituted a controversial travel ban in January 2017, Google employees discussed ways they might be able to tweak the company’s search-related functions to show users how to contribute to pro-immigration organizations and contact lawmakers and government agencies. Google is a unit of Alphabet Inc. GOOGL, GOOG.

Where are other markets trading?

Asian stocks rose, with shares in Shenzhen on track for their best week since July and Japan’s Nikkei at its highest level since January.

Crude-oil prices CLK9 rose 0.6% while gold GCM9 was down 0.1%. The U.S. dollar index DXY inched up by 0.1%.

Article was originally published by Ryan Vlastelica at marketwatch.com


What ‘The Most Important Chart in the World’ Says about Stocks Going Forward

the next leg of the bull market may depend on the Nasdaq breaking through a strong trend line

The Nasdaq Composite Index has been the standout stock-market index in 2018, as massive gains in large-capitalization technology and internet stocks have powered it past the Dow and S&P 500, which have themselves been performing notably better than overseas indexes.

Thus far this year, the Nasdaq COMP is up about 15%, well above the 8% rise of the S&P 500 SPX and the 5.3% gain of the Dow DJIA. Recently, however, the Nasdaq has struggled. It has dropped 2.1% thus far in September, a steeper decline than the 0.4% drop of the S&P 500, and well below the 0.2% rise of the Dow.

A key question for investors, then, is this: Where will the Nasdaq be going from here, and will the rest of the market follow?

An answer to that question comes in what Andrew Adams, senior research associate at Raymond James, dubbed “the most important chart in the world,” a look at the Nasdaq over the past 10 years.

What the chart demonstrates, Adams wrote in a report, is the clear trend line that the Nasdaq has repeatedly bumped up against, representing “the upper limit to how high the Nasdaq can go” unless it breaks through it in a more definite fashion. Another line, in green on the chart, shows the lower limit to the index.

“This line has stopped the Nasdaq in its tracks several times over the last few years, and the broad market typically doesn’t make it very far without the tech-heavy Nasdaq leading the way,” Adams wrote. “The overhead resistance is also why it may be tough to see significant upside in the near term without the index breaking out above the line.”

In other words, Wall Street may have trouble moving decisively higher if the Nasdaq doesn’t lead the way. The prospects for that could be somewhat difficult, given how many of the biggest weights in the Nasdaq — notably, the FAANG group of Facebook FB, Apple AAPL, Amazon AMZN,  Netflix and Google parent Alphabet GOOGL, GOOG — have stalled after massive moves over the past several years.

Adams conceded that the Nasdaq could break through this trend line but noted that “so far it has not,” and that “nothing is stopping the index from just riding that line higher as it did in 2014-2015 either.” (See the arrow cluster on the chart’s midpoint.)

The Nasdaq has tested both ends of this trading range in 2018, and “until we get a break in either direction,” Adams wrote, “we must assume these lines will continue to act as upper and lower boundaries for the Nasdaq.”

Raymond James isn’t alone in suggesting stocks could be stuck in a range. Also on Wednesday, Morgan Stanley wrote that 2018 could mark “the beginning of a wide trading range that could last several years.”

The bank said the boundaries for the S&P 500 would be at the 2,400 and 3,000 levels, a range of 25% at the middle of which the benchmark index currently sits. It closed Tuesday at 2,887.89; based on that, the low end of Morgan Stanley’s range would represent a drop of 16.9% from its current level, while the high end would make for a gain of 3.9%. The firm’s “base case” price target for the S&P is 2,750, or down 4.8% from current levels.

Article and media were originally posted by Ryan Vlastelica at marketwatch.com


Should Stock-Market Investors Start to Worry about the Tech Wreck?

A rout in the technology and internet sector is putting the Nasdaq Composite Index on the brink of registering its worst week in more than five months.

The tech-laden Nasdaq COMP is set to decline 2.5% for the Labor Day-abbreviated week, which would represent its steepest weekly drop since March 23 when the index plunged 6.5%, according to FactSet data. An index of the largest companies by market value, the Nasdaq-100 Index NDX also is set to suffer its worst weekly slide, down 2.9%, since late March.

The tech-related tantrum comes not long after the Nasdaq touched a record well above the psychologically important round-number mark at 8,000 on Aug. 29, and has raised some questions about the ability of the broader market, which has been mostly fueled by gains in the sector, to achieve new heights.

Wednesday’s decline was primarily fueled by souring sentiment on the social-media names, Twitter Inc. TWTR Chief Executive Jack Dorsey and Facebook Inc. FB Chief Operating Officer Sheryl Sandberg attempted to defend their efforts to prevent outside manipulation of their social-media platforms by Russian and other foreign actors, highlighted by fake accounts during the 2016 presidential election.

On Thursday, tech took a further leg lower, spurred by selling in chip-related stocks following weak outlooks from chip makers. The chief financial officer of KLA-Tencor Corp. KLAC offered a weaker-than-expected outlook for chip shipments at the Citi Global Technology Conference, which helped to send the broader sector spinning lower. A popular way to bet on the semiconductor sector, iShares PHLX Semiconductor ETF SOXX traded 2.5% lower on Thursday and shares of a key component of that exchange-traded fund, Micron Technology Inc. MU sagged by 9%.

So, does this all add up to an unraveling of tech names that helped drive the S&P 500 index SPX and the Nasdaq to new heights about a week ago?

A number of market analysts say the tech uptrend remains intact:

“I don’t think the uptrend is broken whatsoever,” said Art Hogan, chief market strategist at B. Riley FBR Inc. “But I do think that it is a healthy reminder that momentum runs both ways,” he said, referring to the investment strategy of buying stocks that have recently risen on the expectation that they will continue their trend over the medium term

He noted that shares of those companies are hitting lofty valuations and tend to be high-beta, or volatile, stocks.

There is further support to the idea that the rally remains in place. Neither the Nasdaq Composite nor the Nasdaq-100 have broken through their short-term moving averages, which market technicians tend to use as evidence of an assets bullish or bearish trend. The Nasdaq is holding about 1.5% above its 50-day moving average at 7,817.84, while the Nasdaq-100 is about 1.3% clear of its short-term trend line.

Hogan also said the U.S.-China trade spat could also be providing fodder for those unloading tech stocks due to potential implications for the tech sector.

Some market participants have pointed to the fact that the performance of the Nasdaq-100 index — representing the Nasdaq’s most highly valued companies — hasn’t coincided with records for the broader Nasdaq Composite. Bob Bronson, principal at Bronson Capital Markets Research said a measure of strength of the two index shows the pair of tech-centered gauge’s peaking about a month ago (see chart below).

“This internal weakness of failing rotation strongly suggests a worse decline than what followed the first of the double-tops seven months ago,” Bronson told MarketWatch on Wednesday.

Speaking to MarketWatch, Frank Cappelleri, executive director of equity sales and trading at Instinet, said he would require more evidence of deterioration in the 12-year long uptrend in the Nasdaq to be concerned.

“I can see how one would call this extended. However, we also need to realize that this uptrend has been intact since the middle of 2006,” he said (see chart below which offers a longer-term look at the relative strength of the Nasdaq against the Nasdaq-100):

 

“The Nasdaq can rally on all sorts of exuberance,” Hogan said, “but whether that’s irrational or not is anyone’s guess, but I just don’t see it now.”

Article and nedia were originally published by Mark DeCambre at marketwatch.com


The Dow Just Busted out of its Longest Stint in Correction Territory in Nearly 60 Years

S&P 500 has already exited its correction phase

The Dow Jones Industrial Average on Monday catapulted out correction territory for the first time in more than six months, ending its longest period in that phase since a 223-session run in 1961, according to Dow Jones Market Data.

Monday’s broad-market rally was underpinned by signs of progress toward resolving nettlesome trade disputes that have whipsawed markets. Specifically, 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.

Before Monday, the blue-chip benchmark had failed to trade 10% above the closing low of 23,533.20 hit on March 23, but could do so with a close at 25,886.52 or higher. It entered correction territory on Feb. 8, when it fell 10% from a record high set on Jan. 26, as did the S&P 500 index SPX Technicians say an asset exits correction territory when it rises 10% from its correction low, though some purists argue that an asset must set a new high before it can be said to be out of correction.

The 122-year-old Dow DJIA closed up 1% at 26,049, also retaking the 26,000 level for the first time since Feb. 2. The S&P 500 previously exited correction phase, and went on to ring up its first record close since Jan. 26 on in Friday. Meanwhile, the Nasdaq Composite Index COMP narrowly avoided its own correction and is set to close at an all-time high Monday.

All three benchmarks closed in positive territory on Monday, with the S&P 500 and Nasdaq adding to their record climbs.

Article was originally published by Mark DeCambre at marketwatch.com


Opinion: Nvidia Says Crypto-Mining Boom is Over for Now

CFO says Nvidia is expecting ’no contributions’ from crypto-related sales for the rest of the year

The extra boost Nvidia Corp. received from selling its graphics chips to cryptocurrency miners appears to be over, at least for now.

Nvidia NVDA Chief Financial Officer Colette Kress surprised investors — who had already been anticipating lackluster crypto sales — with an even more downbeat forecast for crypto-mining sales Thursday. Nvidia released second-quarter earnings and noted a shortfall in crypto sales in addition to the forecast.

“Our revenue outlook had anticipated cryptocurrency-specific products declining to approximately $100 million, while actual crypto-specific product revenue was $18 million,” Kress said in prepared remarks. “Whereas we had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward.”

Cryptocurrency was clearly a small part of Nvidia’s overall revenue, which grew 40% in the second quarter to $3.1 billion, led by its gaming business. But as Nvidia’s graphics chips and cards have been used in the past year for mining digital currencies, its stock became popular as an alternative to cryptocurrencies for some investors.

Nvidia had experienced stronger sales earlier this year by those seeking to mine for cryptocurrency like ether ETHUSD but most investors expected crypto revenue to decline after Chief Executive Jensen Huang predicted a drop while announcing first-quarter earnings results. The value of bitcoin BTCUSD the largest digital currency, has lost almost half its value this year as a bear market emerged for crypto.

“We did almost $300 million in crypto, and next quarter we expect it to be down by two-thirds of that,” Huang told MarketWatch in May.

After reporting $289 million in revenue from cryptocurrency miners buying its graphics cards in that report, the consensus among Wall Street analysts for full-year crypto revenue was $498 million, according to FactSet. That forecast is likely going to drop sharply. And not many analysts asked questions about the crypto shortfall on the company’s call with analysts. One analyst asked if Nvidia knew how much of its GeForce graphics card business had been driven by crypto.

“A lot of gamers at night, they could — while they are sleeping — they could do some mining. And so, did they buy it from mining or do they buy it for gaming, it’s kind of hard to say,” Huang said.

Nvidia shares fell 5% in after-hours trading, even though the company’s second quarter came in better than expected. The downturn in crypto pressured its third-quarter revenue forecast, which called for sales of $3.19 billion to $3.32 billion, lower than the FactSet consensus of $3.34 billion.

Advanced Micro Devices Inc. AMD which has also seen a brief boom from cryptocurrency mining, showed a less drastic decline in its earnings last month, when crypto-related sales fell from 10% of revenue to 6%. AMD’s quarter ended a month earlier, however, which could indicate that blockchain sales plunged in July.

The news means investors who were targeting Nvidia as another way to play cryptocurrency might want to move elsewhere for now. But Nvidia is still reporting strong growth in its other segments, including an 82.6% jump in data-center revenue and a 52.2% increase in its core gaming business. Those segments are larger, still growing, and much more important to Nvidia’s future than the crypto revenues that appear to have disappeared.

Article was originally published by Therese Poletti at marketwatch.com