• Investing & Markets

Weekly Market Digest: A Week Full of Big Moves

November 16, 2018 | Lacey Cobb, CFA, CFP®

The past week was full of familiar themes and big moves ahead of the shortened holiday trading week.

There were flashes of 2015 energy price drops and 2016 Brexit headlines, but it was the continued 2018 themes of tech routs and U.S./China trade agreement concerns that reminded everyone it is in fact the year 2018.

Stock earnings throughout the week came in with mixed results, adding to the landmines scattered throughout all areas of the market. Another big move was in PG&E stock which fell over 50% in a two-day period, followed by a 36% jump Friday over speculation on the company’s involvement in the Northern California Campfire. The wildfire was declared the deadliest in state history with over 600 people still missing, 63 confirmed fatalities, 142,000 acres burned, 11,862 structures destroyed, and still only 45% contained according to Cal Fire and local officials as of Friday morning.

Several air quality measuring apps have declared Northern California air quality not only hazardous, but currently the worst in the world. If you live in Northern California, it is recommended to avoid going outdoors or to wear a proper mask when you do.

Weekly Returns

S&P 500: 2,736 (-1.61%)
FTSE All-World ex-US (VEU): (+0.04%)
US 10 Year Treasury Yield: 3.08% (-.09%)
Gold: $1,222 (1.0%)
EUR/USD: 1.1414 (0.69%)

Major Events

  • Monday – Concerns over weakening iPhone demand battered tech stocks.
  • Tuesday – Amazon announced New York City and Northern Virginia for its new headquarters.
  • Tuesday – Oil Prices plunged the most since 2015 on over-supply fears and recorded a record 12th straight day of declines.
  • Wednesday – Slowing global growth concerns weighed on markets halting rally attempts.
  • Thursday – A day after a draft Brexit deal was announced, six government ministers, including Brexit secretary Dominic Raab, resigned. The British pound plunged 2% against the U.S. dollar after the announcement; the most since July 2016.
  • Thursday – Markets rebounded on optimism over a written response from China to U.S. demands for trade reform ahead of the upcoming G20 summit.
  • Friday – Chip stocks continued their fall; Nvidia missed earnings and decreased their outlook.

Our Take

Although this week’s market-moving headlines are not unfamiliar, there are some key items to point out. The tech sector has largely been the juggernaut leading the market to recent highs and subsequently, leading the correction down. The broad technology ETF QQQ is down about 10% from its high, but there have been some alarmingly large moves specifically in the semiconductor space. Chip companies like Nvidia and Advanced Micro Devices have corrected around 40% in only about a month and half! Around half of those moves came after reporting weak earnings and outlook for the industry. Apple though, is what initially sparked this week’s tech rout dropping 5% Monday after one of its suppliers, Lumentum Holdings (down over 30% from recent highs), cut its earnings and revenue outlook. What is key to know here is that semiconductors are very cyclical and generally are perceived as a bellwether for economic growth, especially now in this tech-driven market cycle. Most Chip companies also have large exposure to China, which has caused them to also get caught up in the crosshairs of trade war concerns. We are not bearish on the technology sector but do think that these developments should be watched closely.

Regarding the most recent developments on the U.S. and China trade talks, Beijing responded with a written document to a U.S. request from a few months back for commitments intended to lead to trade talks. Per a Reuters report an official said, “The Chinese document included 142 items divided into three categories: issues the Chinese are willing to negotiate for further action, issues they are already working on and issues they consider off limits.” The fact that China sent a written response was cause for some optimism ahead of the G20 Summit, but some officials such as Wilber Ross, U.S. Secretary of Commerce, were quick to curb such reactions suggesting only a framework would be agreed upon head of a meeting. President Trump had a bit more of an optimistic tune saying, “China wants to make a deal, they sent a list of things they are willing to do which is a large list and it is just not acceptable to me yet, but at some point I think that, we are doing extremely well with respect to China,” per a Bloomberg report on Friday. Despite some optimism over these developments, it is important to keep in perspective that China has made promises on trade reforms before and not followed through. The G20 summit, set for the end of the month, will be a key event to follow and likely market moving.

The ongoing trade disputes between the U.S. and China have been one of the major reasons for renewed fears of slowing global growth. That combined with the huge drop in oil prices this week over supply concerns brought back fresh memories from three years ago when the energy rout brought down global markets on slowing global growth concerns. We don’t know where the market will go from here, but we will continue to monitor these warning signs closely and keep you informed. One thing is clear, the recent market correction has woken up those who have become complacent and serves as a humbling reminder of how quickly and sharply markets can change.

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