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Market Update

Social Dive: Facebook, Big Tech Weigh Stocks Monday; Fed Watch Begins

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March 20, 2018

(NOTE TO READERS: JJ Kinahan is traveling today, so the following is a guest Market Update column written by Shawn Cruz, Manager, Trader Strategy at TD Ameritrade).

(Tuesday, Market Open) Some strength in equities in the early going looks like it might help the markets open to a modest upside on the heels of the worst day in trading across the board in nearly six weeks.

There are no major economic reports on the calendar today though earnings are still trickling in. Much investor attention appears to be focused on the start of the Federal Reserve’s two-day meeting that is expected to end tomorrow with a quarter-point basis hike in interest rates. Besides the step up in rates--the CME FedWatch tool had a probability rate of 94.4% earlier today—investors might want to take note of Chair Jerome Powell’s take on further hikes. Some analysts said they expect the Fed to take on a more hawkish tone. Investors might want to watch for any changes in the Fed’s summary of economic projections and the dot plot for hints to how the interest-rate winds might be blowing.

In early trading, Oracle (ORCL) shares were down about 9%. Late Monday, the tech giant beat Wall Street’s expectations, but disappointed with weak revenue guidance that appears to be coming from a slowdown in its cloud computing segment. That could mean that competitors that have stepped into the space may be taking some market share away from ORCL, some analysts said.

It was a sea of red yesterday—with only safe-haven assets like gold in the green—and the major benchmarks all giving up more than 1%. Many analysts talked about volatility yesterday ahead of the scheduled start today of the Fed’s meeting.

Other analysts said uncertainty is gripping markets as investors worry that protectionist trade policies could disrupt economic growth around the world, according to the Wall Street Journal. Speaking on CNBC earlier this morning, Wilbur Ross, U.S. Secretary of Commerce, said many of the tariffs could raise prices by about one-half of 1% on steel and aluminum used for products ranging from beer and soup can packaging to cars. “If these companies are so fragile that a fraction of 1% is going to cause layoffs, then they don’t have much of a business to begin with,” Ross said.

Yesterday, technology looked to be a huge culprit, with FAANG—Facebook (FB), Amazon (AMZN), Alphabet (GOOG), Netflix (NFLX) and Apple (AAPL)—stocks taking the biggest beating. Social-media stocks have been the target of government regulation and analysts said much of that talk swirled around again yesterday after this weekend’s Facebook (FB) and Cambridge Analytica disclosure about a data breach that might have influenced the 2016 elections. FB shares tumbled some 8% intraday from Friday’s close, and moved into correction mode, falling lower than their 50-day, 100-day and 200-day simple moving averages. FB shares appear to be under pressure again today.

Despite such a deep dive on the broader markets, analysts said there was no sense of panic on trading floors and volume was on the modest side. That could suggest that not only were investors taking profits off the table, few were buying the dips.

When it all shook out, the market posted its largest one-day drop since Feb. 8.  At its session low, the Dow Jones Industrials ($DJI) was off 493 points before settling lower by 335, or nearly 1.4%, wiping out all gains it has made since the beginning of the year. All 30 stocks pulled back to give the Dow its sixth triple-digit move in seven days, the third straight day down. Much of the same was happening on the S&P 500 (SPX), falling 1.4%, with all 11 sectors in the red. The Nasdaq Composite (COMP) absorbed the biggest hits, thanks to its tech-heavy leaning, giving up better than 2.3% intraday before finishing 1.8% to the downside.

Meanwhile, the Volatility Index (VIX) was on fire, shooting up better than 29% intraday to flirt with the 22-mark—it’s highest level since March 2. After opening at 16.63, it managed to close at 19.13, and was in the 18-point range earlier today.

Yields on Treasury notes flattened too with the two-year rising to 2.30% and the 10-year falling to 2.84% as prices on both went in two directions. In early morning trade, however, both the two-year and the 10-year yields were up a couple basis points though some analysts noted that fixed income could be choppy until the Fed’s interest-rate decision is announced.

FIGURE 1: THE BAD, THE BAD AND THE UGLY.

There was no rest for the wary yesterday after investor uncertainty appeared to tank the market. All three of the major benchmarks dipped below 1% with the Nasdaq Composite (in blue) taking the deepest fall, off 1.8%. The SPX (in purple) lost about 1.4% as did the Dow (bar chart), which wiped out all gains made since the beginning of the year. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

That was then; this is GDPNow: Think the markets have been volatile? So has GDPNow, the Atlanta Federal Reserve's metric for expected growth in annualized gross domestic product (GDP). Back in early February, after a red-hot reading of the ISM Manufacturing Index, the Atlanta Fed's tracker registered 5.4% annualized GDP growth for 2018. Since then, a series of muted readings on inflation, trade, and sales of autos and homes, as well as retail sales, have dragged down the GDPNow metric to 1.8% as of last Friday. It's now well below those readings from early February, but more in line with the slow-growth recovery that began in mid-2009.

The Long-Term Hold: Could investors finally be getting it about focusing on the long game with stocks? Maybe, according to a recent study by Bankrate.com tracking investor behavior during the stock market sell-off from Jan. 28 to Feb. 8. Only 6% of investors told pollsters that they sold stocks during that market tumult, according to the survey. About a quarter described themselves as fearful or sad, the survey said.

But maybe they just weren’t paying attention. Some 60% didn’t make any moves, 44% said they were indifferent, and one in six said they weren’t even aware there was a downturn at all, the survey found.

Whistleblowing Pays: At least it did for three Merrill Lynch insiders who received a record $83 million from the Securities and Exchange Commission (SEC) tied to a 2016 settlement with the brokerage, which is now part of Bank of America Corp. (BAC). According to the SEC, two whistleblowers will split $50 million and a third will get $33 million for tips that helped the agency win a $415 million settlement and an admission from Merrill Lynch of misuse of customer funds. Merrill Lynch said at the time no clients were harmed and no losses were incurred.

“We hope that these awards encourage others with specific, high-quality information regarding securities law violations to step forward and report it to the SEC,” Jane Norberg, chief of the SEC’s Office of the Whistleblower, said in a statement Monday. Since it started giving monetary awards to whistleblowers in 2012, the SEC has written out checks worth more than $262 million to 53 whistleblowers, according to the agency.

All the best,
Shawn

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Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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