U.S. stocks opened sharply lower on Tuesday, November 20, 2018, as a fresh wave of weak retail results and warnings from major companies deepened fears about holiday sales, trade tensions and slowing growth.
The S&P 500 sank to a three-week low in early trading, while the tech-heavy Nasdaq fell to more than seven-month lows after Apple Inc’s APPL.O shares dropped 3.8 percent. The decline in Apple, which had helped lead the market for much of the bull run, added pressure across the broader market.
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 slipped back into negative territory for the year, underscoring how quickly sentiment had reversed.
Retailers including Target and Kohl’s had already raised concerns about the holiday season, feeding worries that consumer spending could soften into year-end. Traders also pointed to broader unease over tariffs, Federal Reserve policy and the outlook for corporate earnings.
Market participants point to uncertainty, fading stimulus and weaker guidance ¶
Matthew Keator, partner at The Keator Group in Lenox, Massachusetts, said the market was being driven less by tax cuts and more by uncertainty around the Fed and trade. He said that uncertainty was feeding fear, which in turn was helping push the VIX higher.
Keator also said lighter trading during the holiday week could be exaggerating the size of the moves in both directions.
Doug Biben, founder and portfolio manager at BCM in Los Angeles, said investors were reacting to a cluster of negative developments, including Boeing cancelling its conference call and Goldman Sachs downgrading Apple. He added that margin calls in FANG stocks were weighing on shares, though he said a later tech rebound would not be surprising if forced selling eased.
Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut, said the trade war, fading fiscal stimulus from tax cuts and Federal Reserve normalization were leaving markets with few positive catalysts. He said 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.
O’Rourke said that weaker outlook was encouraging investors to take profits and reduce risk heading into year-end. He also said weakness in the corporate bond market was another sign of de-risking, as rising rates and softer earnings expectations began to widen spreads.
Apple, tariffs and bond spreads add to the pressure ¶
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.
Kuby said the latest leg lower was clearly tied to Apple, but he argued the broader concern had shifted toward a slowing economy. He pointed to cautionary retailer commentary, rising interest rates, trade-related disruptions and weak housing data as signs that earnings estimates could be revised lower.
He also said the market was still dominated by momentum trading, and that the direction of that momentum had now turned negative. On the corporate bond market, Kuby said widening high-yield spreads against Treasuries were another risk-off signal and evidence that investors were becoming more cautious.
Reuters reported the market move from New York on November 20, 2018.
