U.S. stocks opened lower on Tuesday, November 20, 2018, with the selloff broadening as disappointing retail results and fresh weakness in Apple intensified fears about holiday spending and slowing growth.
The S&P 500 slipped to a three-week low in early trading after Target and Kohl’s reported weak results and cautious outlooks, while technology shares extended losses on concerns about iPhone demand. Apple Inc’s APPL.O fell 3.8 percent, pushing the stock to its lowest level since early May and dragging the tech-heavy Nasdaq to more than seven-month lows.
At one point in morning trade, the Nasdaq, S&P 500 and Dow Jones Industrial Average were all down more than 2 percent. The S&P also moved back into negative territory for the year.
Market participants said the pressure reflected a mix of factors, including trade tensions, fading support from U.S. tax cuts, tighter Federal Reserve policy and weaker corporate guidance heading into year-end.
Doug Biben, founder and portfolio manager at BCM in Los Angeles, said the market was being hit by several negative developments at once. He pointed to Boeing cancelling its conference call, Goldman Sachs downgrading Apple and margin calls in FANG stocks. He also said Facebook moving higher could support an afternoon rebound in tech after forced selling eased.
Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut, said the trade war, fading fiscal stimulus and the Federal Reserve’s normalization path were leaving investors with few positive catalysts. He added that third-quarter earnings had been solid, but fourth-quarter guidance from retailers and large-cap technology names such as Amazon, Apple and Facebook had come in below expectations, prompting investors to take profits and reduce risk.
On the corporate bond market, O’Rourke said widening spreads were another sign of de-risking, noting that years of tight spreads had reflected complacency and that rising rates and weaker earnings expectations were now forcing investors to demand more risk premium.
Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago, said the market’s upward momentum had already been broken in September after tariffs were imposed on Sept. 24 and the Federal Reserve removed the word “accommodative” from its policy statement on Sept. 26. He said the latest decline was clearly tied to Apple, but added that the bigger concern was a slowing economy.
Kuby said warning signs were building across the economy, citing Apple’s fourth-quarter guidance, retailer caution, rising interest rates, trade-related disruptions and weak housing data. He said those pressures were leading to downward earnings revisions and making the trading environment increasingly difficult.
He also described the market as heavily driven by momentum trading, saying that the same money that had helped push stocks higher was now moving the other way. On the bond side, he said recent widening in high-yield spreads over Treasuries was another risk-off signal.
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