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Weekly Market Update — November 24, 2018

  • U.S. stocks had the worst Thanksgiving week in seven years as the markets fell significantly and erased most of the gains for the year
  • The DJIA was hit the worst, plummeting 4.4% and pushing its YTD performance into the red
  • The S&P 500 lost 3.8% and it moved into the red too whereas NASDAQ lost 4.3% but has managed to remain green with a 0.5% YTD return
  • Continued weakness in tech stocks, especially Apple and Facebook, plus declining oil prices, which have witnessed seven weekly declines, weighed very heavily on investor sentiment
  • The losses from the Tech sector drove the underperformance in the higher valuation growth stocks, which trailed value stocks for the 4th consecutive week
  • Disappointing earnings from notable retailers right before the Black Friday shopping day also dampened sentiment
  • Energy and tech stocks were walloped with the Information Technology sector dropping 6.1% and the Energy sector losing 5.1%
  • The Real Estate and Utilities sectors were the only sectors to finish with losses under 2%, as Real Estate gave back 1.5% and Utilities dropped 1.4%
  • WTI crude dropped 9.2% to $51.28/barrel this week and is now off over 33% since its recent four-month high
  • U.S. Treasuries were mostly mixed, with the 2-year yield adding a few basis points to end the week at 2.83% and the 10-year yield dropping a couple of basis points to end at 3.04%

Weekly Market Performance

Retailers, Black Friday and Cyber Monday

Investors went into the week with higher expectations as notable retailers were set to report earnings results before Black Friday. Unfortunately, the earnings reports mostly disappointed. Reports from Lowe's, Target and Kohl's reported concerns that investors don't usually want to see – margin pressures, disappointing results and bloated inventory, but there were a few more positive reports from Best Buy, Foot Locker and the Gap.

All of these were shortly before the holiday shopping kicked off in earnest with Black Friday, which investors were hoping would lead to record retail sales. And according to Adobe, online holiday shopping (considered to be from November through December) revenue in the U.S. is projected to be $124 billion in 2018, 14.8% more than online holiday spending in 2017.

Further, Adobe predicts that: 

  • Online revenue growth during the holiday season continues to outpace overall retail growth (14.8% online vs. 4.5% overall)
  • Nearly $1 of every $6 retail purchases will be done online in 2018
  • Cyber Monday 2018 is predicted to be the largest online sales day in history, with shoppers spending a record $7.8 billion this year, up 17.6% from the previous year

FAANG Stocks Enter Bear Market Territory

Early in the week, all of the FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google (parent Alphabet) – entered bear market territory by being off more than 20% from their recent highs.

Apple has been besieged by negative news, including reports from the previous week that three of its major suppliers were reducing earnings estimates as a result of Apple reducing its orders from the suppliers because of disappointing iPhone sales.

And Facebook shares keep falling, especially after a recent Wall Street Journal article that described chaos within the Facebook walls that has led to a number of key executives leaving the tech giant.

Economic Data was Less Robust This Week

This week's economic data was mildly disappointing and interpreted differently from bear market and bull market economists alike.

The day before Thanksgiving, the U.S. Census Bureau released the October advance report on manufacturers' shipments, inventories and orders as follows:

  • New orders for manufactured durable goods in October decreased $11.5 billion or 4.4 percent to $248.5 billion
  • This decrease, down three of the last four months, followed a 0.1 percent September decrease
  • Excluding transportation, new orders increased 0.1 percent
  • Excluding defense, new orders decreased 1.2 percent
  • Transportation equipment, down following two consecutive monthly increases, drove the decrease, $11.7 billion or 12.2 percent to $84.7 billion
  • Shipments of manufactured durable goods in October, down following two consecutive monthly increases, decreased $1.4 billion or 0.6 percent to $254.5 billion
  • Inventories of manufactured durable goods in October, down two of the last three months, decreased $0.1 billion or virtually unchanged to $410.9 billion

The Surveys of Consumers from the University of Michigan reported that Consumer sentiment remained largely unchanged “at very favorable levels during 2018, with the November reading nearly at the center of the eleven-month range from 95.7 to 101.4.” In addition, the survey reported that the Sentiment Index remained unchanged among Democrats and Republicans prior to and following the election.

The day before Thanksgiving also brought word from the Department of Labor that weekly jobless claims rose to their highest levels since the summer.