Market Recap – Netflix, Microsoft, Starbucks and Alphabet Fall

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Market Digest – Week Ending 4/22

Stocks rose despite a series of high profile growth stock earnings misses. Netflix, Microsoft, Starbucks and Alphabet all fell at least 5% after releasing earnings. International stocks outperformed, led by Japan as a weaker Yen boosted exporters. China bucked the trend, losing 3% for the week. Oil prices rose despite a lack of agreement to freeze output in a meeting between OPEC leaders and Russia.

Weekly Returns:

S&P 500: 2,092 (+0.5%)
FTSE All-World ex-US: (+1.6%)
US 10 Year Treasury Yield: 1.89% (+0.14%)
Gold: $1,233 (-0.1%)
USD/EUR: $1.123 (-0.4%)

Major Events:

• Monday – Oil prices fluctuated wildly after talks aimed at capping production failed but a strike in Kuwait took production offline.
• Tuesday – The Dow passed 18,000 for the first time since July.
• Wednesday – The EU filed formal charges against Google over anti-trust within Android.
• Wednesday – Producer prices fell 0.1% in March, signaling inflation remains absent.
• Thursday – The ECB left its policy rate unchanged but hinted at further dovish action.
• Thursday – Mitsubishi Motors said it manipulated fuel economy tests on some of its cars. Shares fell 20%.
• Thursday – In earnings news, Alphabet, Microsoft, GE and Starbucks reported disappointing earnings while McDonalds exceeded expectations.
• Thursday – US regulators proposed broad rules deferring Wall Street executive bonus payments and allowing long claw-back periods in an effort to prevent risk-abuse.
• Friday – China ordered Apple to halt its online book and movie services.

Our take:

Broad US stock indexes rose this week, but the tech-heavy Nasdaq 100 lost 1.5%. For the year, the top performing sectors are Energy, Communication Services, Basic Materials and Utilities. The worst are Tech, Financials and Health Care.

All of this is normal – sector leadership shifts regularly. The problem is most active investors tend to pile into whatever has been doing best the last year or two. That’s why there are a lot underperforming portfolios out there this year. It is the reason most investors lag the markets so badly over time – they buy what has gone up after it has gone up and sell what has gone down after it has gone down.

An indexing approach is better because as long as one stays the course the negative impact of market timing can be avoided. The problem with most indexes is they have big bets on whatever happens to be the big stocks and the big sectors. Sometimes that is good, but right now those are the very ones that are underperforming.

Alphabet (Google), Microsoft, Facebook, Apple and Amazon are all valued around or well over $300 billion. All but Apple come with very rich valuations in terms of earnings multiples. That may be fair – they are great companies. But they must perform at an elite level for a long time to pay off in the end. A good portfolio should own some of these names, but it should also have meaningful exposure to the boring areas of the market like Utilities and Basic Materials. If you are loaded up on popular growth stocks this week was likely a little painful, but it has been a great run and it is not too late to diversify.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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