The entire week was a wild roller coaster ride of volatility. It was marked by a whipsaw of price action, a test and retest of the November lows, several high impact headlines on a variety of the market’s favorite pressure points, and of course a few testy tweets from our President.
Some pressure points have been testing investor fortitude for a few months, while a couple are fresh, adding to an already heightened level of uncertainty among traders and investors alike. Additionally, while the second half of Q4 typically includes numerous crosscurrents, it’s rarely accompanied the volatility and anxiety that are dominant right now.
Highlights and Lowlights:
Friday, stocks were unable to repeat the near round trip reversal investors were treated to Thursday. While major market averages closed marginally off their worst levels of the day, they still settled with sharp declines ranging from 2% to 3%, leaving them with losses on the week between 4½ and 5%.
The S&P 500 (^SPX) closed at 2633.08, just fractionally above its November closing low of 2632.56 from November 23. The selling in the S&P 500 may have actually been buffered a bit by a 2% rally in crude oil Friday, after OPEC members agreed with Russia on a coordinated production cut of 1.2 million barrels a day.
The NASDAQ Composite (^IXIC) lost 3% on Friday alone, closing below the benchmark 7000 level at 6969.25 The November closing low for the NASDAQ was 6908.82 on November 20.
The fact that this was the worst weekly performance for the Dow Jones Industrial Average (^DJI), S&P 500, and NASDAQ in over 8 months is even more striking. Since Monday, stocks finished with gains of +1½ to 2%, and Wednesday markets were closed.
Thursday, stocks went on an epic round trip, wiping out late morning losses of 2½ to 3% to close with mixed results on the day. Two big stories dominated investor attention. Initially stocks were under heavy selling pressure, sparked by the arrest of the CFO of Huawei, a Chinese technology company. While Investors had already began to discount renewed optimism on U.S. – China trade negotiations, the Huawei incident just adds a whole new level of potential toxicity to those talks. This story is in the first inning.
While the initial bounce Thursday was a trading rally, it was comments by Federal Reserve Chairman Powell that the added the substance. While Powell had made similar comments just over a week earlier, his emphasis that the FED was nearing a “wait and see” approach to further interest rate hikes, was a breath of fresh air for the remainder of the day.
That being said, Powell’s comments, or rather the WSJ article laying out the likely shift by the Federal Reserve, was not enough to follow through on Friday. The key takeaway here is that anxiety over trade negotiations with China, is a heavier weight, for now than relief from a less hawkish posture by the FED.
What about the Week Ahead?
There’s no doubt that markets are short term oversold, but that alone will not prevent further selling.
The fresh breaking story Monday morning is that British Prime Minister Theresa May has postponed the vote in Parliament on her negotiated BREXIT plan that was originally scheduled for tomorrow. Obviously, she didn’t have the votes secured to pass it.
Early trading in stock index futures has gone from mildly negative to slightly positive since the announcement the BREXIT vote has been postponed.
My cynical explanation for this, which I’m sure is correct, is that markets would rather see a lousy BREXIT deal passed rather than deal with the optics of having it defeated.
Definitely stay tuned here. This is a story tailor made for the British tabloids, with multiple subplots behind the scenes, I’m sure.