Telemus Weekly Market Review November 19th - November 23rd, 2018

November 19 – November 23 Week in Review

It was another “turkey” of a week for the markets in holiday shortened trading last week. The S&P 500 fell 3.58%, the Dow Jones Industrial Average lost 3.97%, the Nasdaq Composite fell 4.41%, and the Russell 2000 outperformed, down only 2.33%. With the exception of the Nasdaq all the major indexes are now down for the year. 

Investors are clearly worried about the market's prospects now with market commentary beginning to emphasize the growing risk of a bear market. Factors contributing to that outlook have included rising recession risk; widening credit spreads; lack of buy-the-dip success in November, and growing calls to bolster defensive positioning in investment portfolios.

Last week tech and energy stocks took the brunt of the damage, with both sectors posting heavy losses. The consumer discretionary, communication services, materials, and industrial sectors also performed poorly. Conversely, the real estate and utility sectors were the only groups to finish with weekly losses under 2.0%.

The tech sector, in particular, has been prone to selling efforts by investors aimed to reduce exposure to a crowded sector running into concerns about a cyclical slowdown, valuations, and increased regulatory scrutiny.

Apple shares took a hit after a Wall Street Journal report indicated the company cut its production orders for all three new iPhones it launched in September. Regarding the iPhone XR, Apple reportedly slashed its production plan by up to a third of the approximately 70 million units it had asked some suppliers to produce between September and February. Apple has fallen 21.3% since providing a disappointing outlook for the holiday quarter on November 1.

Facebook shares continued to struggle, losing 5.6% last week, amid ongoing negative publicity surrounding the social network. CEO Mark Zuckerberg was reportedly not happy with COO Sheryl Sandberg over the handling of the Cambridge Analytical scandal, according to a WSJ report. Also in the report, Mr. Zuckerberg's newly-adopted, aggressive leadership style has not fared well with key executives, some of whom have resigned.

Turning to the energy sector, WTI crude, which has been pressured by ongoing supply concerns and decreasing demand, dropped 9.2% to $51.28 a barrel last week and has now fallen over 1/3rd from the four year high just reached in October. Oil prices were further pressured on Tuesday after there was some speculation that Saudi Arabia might not force an oil production cut after U.S. President Donald Trump defended the United States' relationship with Saudi Arabia in the wake of the killing of Jamal Khashoggi.

Last week featured a list of earnings reports from notable retailers. Reports from Lowe's, Target, Kohl's, L Brands, and Ross Stores reflected ongoing concerns over gross margin pressures, elevated inventory levels, disappointing same-store sales, and included some cautious guidance. On the other hand, retailers Urban Outfitters, Best Buy, Foot Locker, and Gap released more positive reports. Separately, Deere missed top and bottom line estimates.

In other corporate news last week, Chinese authorities approved United Tech's acquisition of Rockwell Collins for $140 a share in cash and stock.

Overseas, the Asia-Pacific Communications Summit concluded without the release of a joint communique due to the ongoing trade disagreement between United States and China. On a related note, U.S. Trade Representative Robert Lighthizer released a report on China's intellectual property practices, alleging that China has not altered its "unfair, unreasonable, and market-distorting practices" that led to the imposition of tariffs. China's Shanghai Composite lost 3.7% last week.

Elsewhere, Chairman of Renault-Nissan-Mitsubishi Carlos Ghosn was arrested in Japan for alleged financial violations. Nissan voted to remove Mr. Ghosn from his Chairman post on Thursday.

U.S. Treasuries ended last week on a mixed note. The 2 year yield added three basis points to 2.83%, and the 10 year yield decreased two basis points to 3.05%.

November 26 – November 30 Economic Calendar