Daily Capital

Weekly Market Digest: Tech Stocks Experience a Volatile Week

The global equity correction picked up steam this week. A hawkish Fed tone caused rates to initially spike, there were concerns over slowing global growth, and trade tensions weighed on markets.

Early in the week, there was indiscriminate selling of both stocks and bonds, with popular momentum and technology stocks leading the way down. The start of the Q3 earning season is also causing some angst as investors question if lofty earnings growth estimates are sustainable in the face of peak margin concerns from input price pressures.

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Weekly Return

S&P 500: 2,767 (-4.1%)
FTSE All-World ex-US (VEU): (-3.38%)
US 10 Year Treasury Yield: 3.15% (-2.48%)
Gold: $1,222 (+1.36%)
EUR/USD: 1.156 (.3%)

Major Events

  • Monday – The International Monetary Fund cut its global economic growth outlook for the next two years citing NAFTA, Brexit, and continued trade war uncertainties.
  • Monday – Tensions rose between the European Union and Italy over Italy’s budget and U.S.-China strains escalated during the U.S. Secretary of State Mike Pompeo’s visit to Beijing.
  • Tuesday – U.S. Treasury Yields hit a seven-year high.
  • Wednesday – Technology companies had their worst day in seven years.
  • Thursday – The global market rout continued across major equity indices with the S&P 500 notching its sixth straight day of losses.
  • Thursday – The U.S. Treasury concluded that China is not manipulating the Yuan in their report to U.S. Treasury Secretary Steve Mnuchin.
  • Friday – The IMF and World Bank meetings began in Bali Friday.
  • Friday – Wells Fargo, J.P. Morgan, and Citi Group kicked off earning season with earnings that beat analysts’ expectations.

Our Take

There was plenty of market news to digest this week, but we believe that two key independent speeches by prominent U.S. figures played a major role in triggering the spike in this week’s volatility.

The first was from Fed Chairman Jerome Powell, who on October 3rd said, “We may go past neutral [interest rates], but we’re a long way from neutral, probably.” This confirmed for many, a real shift to a less accommodative Fed and the likelihood of more rate hikes. As a result, interest rates spiked across the yield curve, bond prices fell, and equity investors reconsidered how stocks will fare with higher rates; a stark contrast to the zero-interest rate environment enjoyed during much of this bull market.

The second was from Vice President Mike Pence, who a day later announced a tougher policy on China and declared in a combative speech that the United States would “not stand down”. The speech included a wide range of accusations delivered by Pence that claimed, “Beijing is employing a whole-of-government approach, using political, economic, and military tools, as well as propaganda, to advance its influence and benefit its interests in the United States.” At a minimum, the implications suggest little optimism for a resolution on trade conflict anytime soon.

U.S. stocks remain modestly up for the year, but global stocks (X U.S.) are down around 10%. Market pullbacks are to be expected, but predicting their length and severity is a fool’s game. Instead, they serve as an important reminder of the risks associated with making concentrated bets in the market. Crowded trades, like the current popularity of momentum and technology stocks are especially susceptible to market corrections. We reiterate our view that a balanced and diversified approach to investing geared toward limiting damages of market corrections, like we saw this week and over the long term, is superior. If nothing else, we believe this should be a wakeup call for those who are heavily concentrated to reassess the risk in their portfolio.

Contact a Financial Advisor

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Lacey Cobb, CFA, CFP®
Lacey Cobb serves as the Director of Advice Solutions at Personal Capital. She has 10 years of financial industry experience, with a background in portfolio management, trading, research, investment analysis, and financial planning. Prior to Personal Capital, she was the Head of Trading and Research at Polaris Greystone Financial Group, where she managed the portfolio management team and served on the investment committee. She started there as a financial planner and helped grow AUM from $250 million to $1.5 billion. Before that, she worked for State Street as a fund accountant. Lacey graduated from the University of California, Davis, and holds both the Chartered Financial Analyst® designation and Certified Financial Planner™ designation.
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