(Monday Market Close) New week: Same old volatility.
Monday’s final numbers—with the Dow Jones Industrial Average finishing down around 1%—don’t really tell the full tale of a wild, whipsaw session.
Stocks swung at breakneck pace from sharp gains to sharp losses Monday following a news report at midday that additional U.S. tariffs might get slapped on Chinese products after the new year. Tech stocks had already slipped, but the tariff news appeared to be the straw that broke the camel’s back. The Dow Jones Industrial Average ($DJI) moved in a range of more than 900 points between its early 351-point gain and a late-afternoon loss of 550 points.
The DJIA managed to cut those late losses in half in about the last 20 minutes of the session to finish only moderately lower. Even so, we seem to be in a situation where any piece of news can potentially send the market on a wild ride. Any time the DJIA moves 900 points in a single session, that tells you a lot about the mood.
That violent swing after lunch put the DJIA into negative territory for the year and briefly down 10% from recent highs, meeting the market definition of a correction (See figure 1). Once again, technology shares across all the major indices were hardest hit. The S&P 500 info tech sector lost nearly 2% Monday. Consumer discretionary stocks also took their lumps as Amazon (NASDAQ:AMZN) remained under pressure (see more below).
Still, this wasn’t as broad-based a sell-off as some of the moves we’ve seen in this volatile month. Certain sectors finished in the green today, some by a sizable amount. Real estate was up almost 1.5%. Utilities and staples sectors also actually gained ground. Some analysts say there appears to be a move toward “value” stocks underway, and Monday’s action might play into that thesis.
The financial sector, which had been hit hard in recent days, also moved about 1% higher Monday. All of the recent volatility might be seen as potentially helping trading volume for some of the big banks.
Nerves Might be Fraying
Many investors seem on edge after all the downward action this month, and the way the market reacted to the tariff news could signal just how nervous people might be. The new tariffs would would apply to imports from China that aren’t already covered by previous rounds of tariffs and might be valued at $257 billion, Bloomberg said. The caveat is that they would only go into effect if planned talks between President Trump and Chinese President Xi next month can’t resolve the two countries’ trade issues.
Boeing (NYSE:BA) fell 6.5%, making it the loss leader for the index, and it looked like the China news might be one reason for the stock’s dive. BA has a major sales presence in that Asian nation. Other multinationals getting hit late Monday included Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), and Apple (NASDAQ:AAPL).
The closely-watched VIX volatility measure jumped another 9% Monday afternoon to climb above 26, up from below 12 at the beginning of October. However, the sell-off has been pretty orderly, with the VIX continuing to grind higher but not suddenly spiking like it did back in February. Just like last week, the relatively slow rise in the VIX might indicate that what we’re seeing here isn’t a panic, but instead looks like a repricing as many investors seem less willing to put the same sort of valuations on stocks that they did a month ago.
NASDAQ Composite had fallen even before the Bloomberg report, despite an early rally in some tech stocks after IBM announced its $34 billion purchase of Red Hat Inc (NYSE:RHT) in a deal designed to enhance IBM’s cloud division. IBM shares fell hard after the announcement, losing 5% on the day, and when tech shares gave up their post-announcement gains, the COMP quickly pared early gains.
The COMP might also have been pinned down by more pressure on AMZN in what looked like continued reaction to the company’s earnings last week. AMZN reported lower-than-expected revenue and delivered a holiday quarter outlook that failed to meet Wall Street analysts’ estimates, raising questions about a possible lag in consumer demand. AMZN shares fell around 6% Monday and are down more than 20% from their all-time high above $2,000, putting the stock into “bear market” territory.
The SPX isn’t a bear yet, but the dive Monday afternoon put it back into correction territory below 2650. It looks like there might not be much technical support for the SPX unless it moves a good way lower, according to some analysts, with a band of support stretching from roughly 2530 to 2550. That’s around the lows for the year recorded in February. This is the second correction of the year.
Amid all this, 10-year Treasury yields showed no signs of really cracking, holding in at around 3.08%. That’s about 20 basis points below their peak from earlier this month, but still way above their lows for the year of around 2.4%. Fears of higher borrowing costs are potentially one factor behind the stock market’s woes.
Earnings Season Rolls On
Looking ahead to earnings early Tuesday, General Electric (NYSE:GE) arguably stands out from the crowd as investors wait to hear from the company’s new leadership team. One thing to consider watching for is what might happen to GE’s dividend, which many analysts believe the company could cut. A dividend cut announcement might be another barrier to market momentum, should it occur. GE replaced its CEO less than a month ago, so investors might want to listen to the conference call to see what kind of message the new CEO brings.
Other major earnings reports tomorrow morning include Pfizer (NYSE:PFE), Allergan (NYSE:AGN), Coca-Cola Company (NYSE:KO), and Mastercard Inc (NYSE:MA). After the close Tuesday comes Facebook (NASDAQ:FB).
FIGURE 1: ANATOMY OF A ONE-DAY SWING: A volatile session in the stock market was punctuated by a break in the Dow Jones Industrial Average ($DJI) that seemed to accelerate in the last hour of trading, but then turned around in a hurry. By the end of the day, DJIA had a range of more than 900 points—from 350 higher at one point, down over 550 at another, and finishing down a "mere" 245 points, about 1%. Data source: S&P Dow Jones Indices. The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
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