Stocks Slide as Investors Await a Slew of Data
Stocks tumbled Monday. We were reminded that markets can’t go up forever. In light of high valuations, a pullback at this juncture is healthy.
The markets took a breather while investors await developments in a particularly busy week. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq all closed lower today. The CBOE Volatility Index (VIX), the so-called fear gauge, rose Monday to its highest level in more than five months.
Keep in mind, all three main indices closed at record levels on Friday, when each index racked up its fourth straight weekly gain. Traders are looking for the next big catalyst. Market-moving data is due in coming days.
President Donald Trump delivers his State of the Union address on Tuesday. Will his remarks reassure or rattle investors? With this president, anything goes. Also on Tuesday, the Federal Reserve starts a two-day meeting.
The ADP Employment report is due Wednesday. Scheduled for Friday are reports on jobs and consumer sentiment.
Most importantly, a quarter of S&P 500 companies are due to report earnings this week. Earnings have been strong. The economic backdrop is positive.
As the world turns…
A tailwind for stocks is synchronized global growth. The International Monetary Fund (IMF) expects the world economy to grow by 3.9% this year and next. That’s up from 3.7% last year and 3.2% in 2016.
The U.S. is into its ninth year of recovery. The IMF boosted expectations for U.S. gross domestic product growth to 2.7% this year from 2.3%. The reason: $1.5 trillion in tax cuts. Corporations will reap a windfall.
China remains on track. Fears that it will sputter are easing. The biggest surprise is Europe. The European Union was mired in slow growth, high unemployment and political dysfunction. No longer. The EU is one of the world’s economic success stories.
Japan fell from grace in 1989. For decades, it seemed hopeless. Now the world’s third largest economy is off the ropes.
Emerging markets are back, too. Commodity prices are rebounding. Mexico is thriving, despite Trump’s protectionism. Rising oil prices are buoying Russia and the Middle East. The major risks? Two types of war.
There’s nuclear war. The Doomsday Clock last week was set at 2 minutes to midnight, the closest since the 1950s. President Trump and North Korean leader Kim Jong-un continue to rattle sabers. Russia is increasingly aggressive. China is vying for the role of top superpower. Great power conflict is replacing terrorism as a Pentagon priority.
Then there’s trade war. Trump threatens to tear up the North American Free Trade Agreement. He pulled out of the Trans-Pacific Partnership. He slapped tariffs on solar power and washing machines. He threatens more restrictions.
Uncertainties include Brexit. Will Britain exit the EU in a clean or messy manner? Negotiations drag on.
The greenback is another wild card. The U.S. dollar crashed to three-year lows last week when Treasury Secretary Steven Mnuchin at Davos said that a low dollar was beneficial for American trade.
Mnuchin later reversed himself. But the message is clear: the White House is ramping up its “America First” campaign. It wants to favor U.S. industry by making domestic goods cheaper for overseas consumers. But a weaker dollar could encourage more risk-taking in already overvalued equity markets. It could fuel bubbles in developing markets.
At Davos last week, 1,000 experts were asked to assess the risks facing the global economy. The top risks cited: political or economic confrontations (93%), military conflict (79%), and a trade war (73%).
Goldman Sachs (NYSE: GS) asserted Monday: “Whatever the trigger, a correction of some kind seems a high probability in the coming months.”
Acceptance that there will be losses on your way to market success will decrease the pain when they eventually come. Today, Wall Street saw losses.
Monday Market Wrap
- DJIA: -0.67% or -177.23 points to close at 26,439.48
- S&P 500: -0.67% or -19.34 points to close at 2,853.53
- Nasdaq: -0.52% or -39.27 points to close at 7,466.51
Monday’s Big Gainers
- Immersion (NSDQ: IMMR) +36.24%
Haptic device maker settles lawsuit with Apple (NSDQ: AAPL).
- KapStone Paper & Packaging (NYSE: KS) +31.01%
KS to merge with WestRock Company (NYSE: WRK).
- Dr Pepper Snapple Group (NYSE: DPS) +22.31%
DPS to merge with Keurig Green Mountain (NSDQ: GMCR).
Monday’s Big Decliners
- CARBO Ceramics (NYSE: CRR) -11.68%
Analysts issue negative view of energy tech firm.
- Adient (NYSE: ADNT) -7.65%
Car seat maker misses on earnings.
- NeoPhotonics (NYSE: NPTN) -7.18%
Negative views of industry weigh on chip maker.
Letters to the Editor
“I’m afraid to read the newspaper. The world seems to be coming apart. How worried should I be about my portfolio?” — Harry K.
Harry, when hasn’t the world been in turmoil? The surest way to make money over the long haul is to control your emotions and see the world the way it really is, not the way you want it to be. Dispassionate analysis, not wishful thinking, is the true path to wealth.
Yes, just reading the headlines these days is enough to make you gnash your teeth. Investors are anxious and with good reason. But at Investing Daily, we don’t rely on gut instincts, hunches or raw emotions. You won’t get rich by rolling the dice. We apply time-tested data to cold, hard reality. And that’s how we find hidden value.
Which headlines worry you the most? Let’s discuss them: email@example.com
John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.