Market Recap - Stocks Extend Losses as Uncertainty Continues to Grip Investors

Wall Street suffered another down week, as continued uncertainty surrounding economic growth, trade, politics, and the path of interest rates kept many buyers on the sidelines.

Heightened trading volatility also proved effective in keeping buyers sidelined, too, as large intraday swings proved exhausting and off‐putting for many participants.

The S&P 500 lost 1.3%, the Dow Jones Industrial Average lost 1.2%, and the Nasdaq Composite lost 0.8%.

Tempering hope that last week's sell‐off created a "tradable" bottom was the continued weakness in the Dow Jones Transportation Average (‐4.4%), S&P 500 financial sector (‐3.5%), and small‐cap Russell 2000 (‐2.6%) ‐‐ all of which play a key role in driving sentiment on the domestic economic outlook. For the month, these groups are down 12.1%, %, and z%, respectively.

Additionally, some cautious‐sounding commentary on the economic outlook from European Central Bank President Draghi, weaker‐than‐expected industrial production and retail sales data from China, and weaker‐than‐expected preliminary manufacturing PMI readings out of the eurozone fueled the negative perspective on growth prospects and the specter of downward revisions to earnings estimates.

There were some conciliatory headline developments this week on the trade dispute between the U.S. and China. In particular, high‐ranking U.S. and Chinese officials resumed trade discussions over the phone; and China is reportedly looking to tweak its "Made in China 2025" policy to allow more access and fairer competition for foreign companies.

Separately, China confirmed it will temporarily reduce its U.S auto import tariffs by 25% (to 15% from 40%) between January 1 and March 31, as both sides continue to work on a deal, and President Trump told Reuters he would get involved in the Department of Justice case against Huawei CFO Meng Wanzhou, who was granted bail Tuesday, if it would serve national security interests and help advance trade negotiations with China.

These positive‐sounding trade headlines offered some hope of a deal being struck, but ultimately, the talk wasn't enough to overcome the fundamental concerns about a slowdown in economic growth.

The S&P 500 energy (‐3.3%), health care (‐1.9%), and real estate (‐1.8%) sectors were some of the hardest‐hit groups this week.

Johnson & Johnson (JNJ), meanwhile, was one of the hardest‐hit stocks. The Dow component plunged 10% on Friday after a Reuters report alleged that JNJ "knew for decades that asbestos lurked in its baby Powder." The company's litigation counsel rejected the Reuters report as "false and misleading," yet the stock nonetheless traded as if investors felt there was some veracity to it.

Energy stocks struggled as oil prices pulled back. WTI crude fell 2.5% this week to $51.27/bbl.

Not all was bad, though. The S&P 500 information technology (‐0.02%) ended the week roughly flat while the communication services (+0.5%) and utility (+0.6%) sectors were able to finish in the green this week.

Recent demand for Treasuries cooled off, giving yields a slight bump. The Fed‐sensitive 2‐yr yield rose three basis points to 2.73%, and the benchmark 10‐yr yield rose four basis points to 2.89%. Meanwhile, the U.S. Dollar Index rose 0.4% to 97.45.

Overseas, UK Prime Minister Theresa May survived a "no‐confidence" vote from her own Conservative Party with respect to her leadership. The vote came after she delayed a vote in the House of Commons on the UK‐EU Brexit plan. She subsequently attempted to renegotiate the plan in Brussels, yet EU officials said the plan was not open for change.

Market Recap - Global Growth Concerns Pull Stocks Lower

The S&P 500 fell 4.6% this week, as global growth concerns were exacerbated by negative developments regarding U.S-China trade negotiations and the continued flattening of the U.S. Treasury yield curve. The Dow Jones Industrial Average lost 4.5%, the Nasdaq Composite lost 4.9%, and the Russell 2000 lost 5.6%.

Investors breathed a fleeting sigh relief that trade relations between the U.S. and China did not worsen over the weekend after the two countries agreed to suspend further tariff actions for 90 days to allow more time for trade discussions. Despite President Trump's optimism, the market's optimism quickly waned on the supposition that a March 1 deadline to resolve major trading issues won't be sufficient time to work out major trade issues that have been in place for years. Furthermore, the specter of increasing the tariff rate to 25% (from 10%) on $200 billion of Chinese goods should an acceptable deal not be reached weighed on investors' minds.

In addition, the news of the arrest of Huawei Technologies' CFO Meng Wanzhou heightened these burgeoning trade concerns. Ms. Meng was arrested Dec. 1 in Canada amid allegations that the company violated U.S. trade sanctions on Iran. Her arrest invited worries about trade negotiations going awry in the 90-day window and potential retaliation against U.S. companies doing business in/with China.

Economic growth concerns were cast into the spotlight by a decisive curve-flattening trade in the Treasury market that featured some inversions on the short end. The 2-yr yield (2.70%) and 3-yr yield (2.71%) closed higher than the yield on the 5-yr Treasury note (2.69%) this week.

Also, the difference between the 2-yr and 10-yr yields narrowed to its slimmest margin since 2007. Specifically, the 2-yr yield lost 11 basis points to 2.70%, and the 10-yr yield lost 16 basis points to 2.85%. Those moves were exacerbated by a "pain trade," as short sellers expecting higher rates were compelled to cover their bearish bets.

In a broader context, concerns over future economic growth drove concerns about future earnings growth. That fueled some of this week's selling interest, which completely unwound the 4.9% gain for the S&P 500 from the prior week at Friday's low.

Notably, that was the case despite there being one less day of trading.  The market was closed Wednesday in recognition of the national day of mourning for President George H.W. Bush.

The worst-performing sectors this week were the financials (-7.1%), industrials (-6.3%), materials (-5.2%), information technology (-5.1%), and health care (-4.6%) sectors.  The only two sectors that escaped the week with a gain were the utilities (+1.3%) and real estate (+0.3%) sectors.

The rate-sensitive financial sector was undermined by the flattening yield curve, which raised concerns about a compression in net interest margins. Regional banks were notable laggards as worries about lower mortgage loan demand stemmed from home builder Toll Brothers (TOL) acknowledging that it saw a moderation in demand in its fiscal fourth quarter ended Oct. 31 and that it saw the market soften further in November. The SPDR S&P Regional Bank ETF (KRE) fell 7.2% this week.

Transport stocks, in particular, weighed on the trade-sensitive industrial sector. The Dow Jones Transportation Average dropped 8.0% this week. American Airlines (AAL) struggled with a steep 16.4% loss this week.

Apple (AAPL) conceded more losses this week, as it dragged on the tech space. Apple has retreated over 20.0% since releasing its quarterly report in October and has remained a signpost of the ongoing effort to liquidate/reduce exposure to this widely-owned sector, which is still the market's most heavily-weighted sector.

The energy sector (-3.1%) was down for the week, yet it outperformed the broader market, helped by a 3.1% bump in oil prices to $52.52 per barrel.

Energy stocks pared gains on Friday after OPEC+ producers agreed to a production cut of 1.2 million barrels per day to address weakening oil prices. Russia was a party to the proposed production cuts; meanwhile, Iran will reportedly be exempt from the production cut requirements.

On a related note, Qatar, in a surprise move, announced plans to withdraw from OPEC to focus on gas production. Qatar has been a member of OPEC since 1961.

Separately, Atlanta Fed President Bostic (FOMC voter) said he thinks the fed funds rate is within shouting distance of neutral, which followed previous remarks from Dallas Fed President Kaplan (non-FOMC voter) who also suggested the fed funds rate is a little bit below neutral. A Wall Street Journal report also suggested that the Federal Reserve might be more cautious-minded about raising interest rates following its December FOMC meeting.

The November Employment Situation Report on Friday seemingly helped substantiate that view. It showed nonfarm payrolls increasing a weaker than expected 155,000 and average hourly earnings increasing 0.2%, which left them up 3.1% year-over-year, unchanged from October.  In other words, the wage growth acceleration the Federal Reserve has been bracing for was missing.

Overseas, global markets finished the week with large losses as well. Germany's DAX (-4.2%) led the European retreat and Japan's Nikkei (-3.0%) led the decline in Asia.

Market Recap - Stock Market Rallies with Optimism Surrounding Fed and U.S. - China Trade Relations

The S&P 500 rallied 4.9% this week, helped by the Fed softening its policy stance and by hope that U.S-China trade tensions would be meaningfully eased at the G-20 Leaders Summit. For the month, the benchmark index rose 1.8%.

Meanwhile, the Dow Jones Industrial Average gained 5.2%, the Nasdaq Composite gained 5.6%, and the Russell 2000 gained 3.0%. For the month, the respective indices gained 1.7%, 0.3%, and 1.5%.

The stock market had one of its best days of the year on Wednesday when Federal Reserve Chair Jerome Powell said he sees current interest rates "just below" neutral. That proved to be a rally point because the language Mr. Powell used in early October indicated a view that the fed funds rate was "a long way from neutral."

Mr. Powell added that there is no preset policy path, and the Fed will be data-dependent in its decision making, which pleased investors. By highlighting risks, though, that included previous rate increases, trade disputes, and Brexit/EU political uncertainty, the market chose to read between the lines that the Fed chair isn't wedded to three rate hikes in 2019.

On a related note, the FOMC's minutes from its November 7-8 meeting, which were released on Thursday, did nothing to upset the notion that the Fed will be hiking rates next month; the CME FedWatch Tool puts the chances at 82.7%.

Regarding U.S.-China trade, President Trump and President Xi are to take the G-20's main stage when they discuss trade matters over dinner on Saturday. U.S. Trade Representative Lighthizer said that he would be surprised if the dinner meeting was not a success. Perhaps causing some jitters, though, is the fact that notable China trade hawk Larry Kudlow is reportedly expected to attend the dinner meeting, along with other staff on hand.

A Wall Street Journal report published Thursday is probably as good a preview of what an eventual best-case outcome would be from the G-20 meeting between the two Presidents. The Wall Street Journal noted that (unnamed) officials on both sides have been floating the idea of forestalling any further tariffs through the spring to set the stage for a new round of talks to address changes in China's economic policy.

In addition to the trade speculation and dovish rhetoric from the Fed, there was a positive bias in the market this week due to the belief that the prior week's sell-off resulted in short-term oversold conditions. Efforts to pick up oversold issues, and some chasing behavior, helped fuel this week's gains, which ultimately turned November from a negative month into a positive month for the major indices.

This week, all S&P sectors finished higher with the consumer discretionary (+6.4%), information technology (+6.1%), health care (+5.9%), and communication services (+5.5%) sectors outperforming.

The rally began with the consumer discretionary group rising on the back of continued strength from the U.S. consumer. Reports of record online Black Friday sales and encouraging forecasts for Cyber Monday sales helped lift investor sentiment. The SPDR Retail ETF (XRT) rose 3.3% this week, and Amazon (AMZN) climbed 12.5%.

Conversely, the defensive-oriented real estate (+2.7%), consumer staples (+2.9%), and utility (+2.7%) sectors underperformed the broader market, though still finished with respectable gains.

In corporate news, General Motors (GM) announced additional restructuring plans that will result in a 15% reduction of its salaried staff and the closure of five of its North American plants. President Trump tweeted his disappointment in GM and is looking to cut all of its government subsidies. Separately, United Tech (UTX) announced its intention to split into three independent companies after the Dow component acquired Rockwell Collins earlier this month.

On the earnings front, Salesforce (CRM), Burlington Stores (BURL), Dollar Tree (DLTR), VMware (VMW), HP (HPQ), and Workday (WDAY) released upbeat reports, while Tiffany & Co (TIF), GameStop (GME), and J.M. Smucker (SJM) disappointed investors.

Looking at other markets, the Treasury yield curve saw some flattening with the 2-yr yield losing one basis point to 2.81%, and the 10-yr yield losing four basis points to 3.01%. The U.S. Dollar Index increased by 0.3% to 97.20, and WTI crude added 0.1% to $50.67/bbl, though lost over 20.0% this month.

Overseas, equity indices in the Asia-Pacific region closed the week on a modestly positive note with Japan's Nikkei (+3.3%) showing relative strength. In Europe, the major indices closed the week slightly higher with Italy's MIB (+2.5%) showing relative strength.

Market Recap - Energy, Tech Stocks Crushed as S&P 500 Loses Yearly Gain

The S&P 500 fell 3.8% on this holiday-shortened trading week, erasing its gain for the year. The Dow Jones Industrial Average lost 4.4%, the Nasdaq Composite lost 4.3%, and the Russell 2000 lost 2.6%.

There was palpable sense of real angst about the market's prospects 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; the message being sent by the sharp losses in cyclical sectors and former leadership stocks/sectors; lack of buy-the-dip success in November, calling into question the prospects of a seasonal rally; and burgeoning calls to bolster defensive positioning in investment portfolios.

Energy and tech stocks took the brunt of the damage with the energy (-5.1%) and information technology (-6.1%) sectors posting heavy losses this week. The consumer discretionary (-4.3%), communication services (-4.0%), materials (-3.5%), and industrial (-3.2%) sectors also had poor performances.

WTI crude, which has been pressured by ongoing supply concerns and decreasing demand, dropped 9.2% to $51.28/bbl this week and extended its decline to 33.3% from last month's four-year high. Oil prices were pressured on Tuesday after 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. U.S. crude stockpiles also rose for the ninth consecutive week, according to the U.S. Energy Information Administration's weekly crude inventory report.

The tech sector, in particular, has been prone to liquidation efforts that have aimed to reduce exposure to a crowded sector running into concerns about a cyclical slowdown, valuations, and increased regulatory scrutiny. In addition, a lack of leadership and the continued inclination to sell into strength have translated into a lack of buying interest.

Apple (AAPL) 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 (FB) shares continued to struggle, losing 5.6% this 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.

Conversely, the real estate (-1.5%) and utility (-1.4%) sectors were the only groups to finish with weekly losses under 2.0%.

This week featured a list of earnings reports from notable retailers. Reports from Lowe's (LOW), Target (TGT), Kohl's (KSS), L Brands (LB), and Ross Stores (ROST) 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 (URBN), Best Buy (BBY), Foot Locker (FL), and Gap (GAP) released more positive reports. Separately, Deere (DE) missed top and bottom line estimates.

In other corporate news, a U.S. appeals court refused to stop generic versions of Johnson & Johnson's (JNJ) prostate-cancer drug Zytiga from entering the market, according to Bloomberg. Also, Chinese authorities approved United Tech's (UTX) acquisition of Rockwell Collins (COL) for $140/share in cash and stock.

U.S. Treasuries ended the week on a mixed note. The 2-yr yield added three basis points to 2.83%, and the 10-yr yield decreased two basis points to 3.05%. Meanwhile, the U.S. Dollar Index increased 0.4% to 96.94

Overseas, the Asia-Pacific Communications Summit concluded on Sunday 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% this 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.

Market Recap - Stocks Lose Ground Over Continuing Growth Concerns

Wall Street tumbled this week, with consumer discretionary and information technology stocks leading the retreat.

Concerns over peak earnings growth continued to linger, and a further breakdown in oil prices also weighed on investor sentiment. Brexit reentered the mix this week, and, as always, U.S.‐China trade headlines were plentiful. The S&P 500 lost 1.6%, the Dow lost 2.2%, the Nasdaq lost 2.2%, and the Russell 200 lost 1.4%.

Within the tech space (‐2.5%), Apple got off to a rough start after two more suppliers, Lumentum and Qorvo, cut their guidance. Disappointing guidance from chipmakers NVIDIA and Applied Materials also weighed on the sector, with NVIDIA plunging nearly 20% on Friday.

Meanwhile, a host of retailers reported earnings this week, including Walmart, Macy's, Home Depot, and Nordstrom to name a few. The reports generally showed better‐than‐expected profits, but shares sold off in response nonetheless. The SPDR S&P Retail ETF lost 4.5%, while the consumer discretionary sector lost 3.8%.

The oil‐sensitive energy space (‐2.1%) fell in tandem with WTI crude, which dropped 6.1% to $56.52/bbl and extended its losing streak to 12 sessions before bouncing back.

Saudi Arabia announced it would reduce its oil exports in December by 500,000 barrels a day due to a seasonal slowdown in demand, but President Trump rebuked that decision on Twitter. There were also reports that OPEC and non‐OPEC allies could be entertaining a plan to cut production by 1.4 million barrels per day in 2019. However, OPEC cut its 2019 oil demand forecast for the fourth consecutive month.

In Washington, Congresswoman Maxine Waters, who is set to take over the House Financial Services Committee this January, vowed that the days of weakening bank regulations will be coming to an end. Ms. Waters' comments should not have been seen as a surprise as it was understood this would likely be the case following the midterm election results. However, a knee‐jerk sell off in the financial space, which finished the week lower by 1.3%, suggested otherwise.

Conversely, outperforming the broader market were the lightly‐weighted real estate (+0.8%), materials (+0.4%), and the heavily‐weighted health care (‐1.1%) spaces.

Elsewhere, U.S. Treasuries saw heightened demand amid market turbulence and a softer‐sounding perspective from Fed Vice Chair Richard Clarida. Mr. Clarida conceded on Friday that he thinks the Fed is getting closer to a neutral rate, which is a dovish stance compared to Fed Chair Jerome Powell's "long way from neutral" comments from last month. The 2‐yr yield lost 13 basis points to close at 2.80%, and the 10‐yr yield lost 12 basis points to close at 3.07%.

This week saw the market bounce on any U.S.‐China trade development no matter if the news was new or repetitive.

A Financial Times report suggested China and the U.S. are trying to reach a trade truce ahead of the G‐20 meeting at the end of the month, but clarification from the U.S. Trade Representative's office said that the next round of tariffs for China are not on hold. President Donald Trump chimed in that China is open to a trade deal, though a list of concessions reportedly presented from China before did not mention structural reforms that have been demanded by President Donald Trump.

At the very least, National Economic Council Director Larry Kudlow did confirm that the U.S. and China have resumed trade discussions.

Overseas, UK Prime Minister Theresa May received cabinet approval for her draft withdrawal statement for Brexit. However, Brexit secretary Dominic Raab, and several other ministers, resigned after the approval, and reports indicate that the 1922 Committee received 48 letters needed to trigger a vote of no-confidence in Prime Minister Theresa May. The vote could take place next week.

Market Recap - Fed Policy Statement Not Enough to Derail U.S. Midterm Gains

The S&P 500 rose 2.1% this week but had to weather a late week sell-off after the latest policy statement from the Federal Reserve humbled an upbeat reaction to the midterm elections. Neither outcome was a surprise, but they were representative of recent market volatility.

The Dow Jones Industrial Average and the Nasdaq Composite also finished the week higher, adding 2.8% and 0.7%, respectively. The Russell 2000 added 0.1%.

The midterm elections produced a split Congress with the Democrats taking control of the House and the Republicans retaining control of the Senate. The prevailing assumption in the market was that a newly divided Congress would preserve market-friendly policies, namely the tax cut and deregulation efforts. In addition, investors took delight in the fact that the stock market has historically done well in years with a Republican president and split Congress.

The Fed released its policy statement on Thursday, in which it decided to leave the fed funds rate unchanged as expected. The central bank noted that it expects further rate hikes that are consistent with sustained economic growth, strong labor market conditions, and inflation near its symmetric 2% target over the medium term, but omitted October's sell-off and U.S.-China trade developments from its policy statement. Those omissions were a clear, between-the-lines message that the FOMC remains poised to raise rates for a fourth time this year in December.

In the stock market, the health care (+4.0%), real estate (+3.6%), and utility (+3.1%) groups led the way. Of note, health care has surpassed the information technology (+1.4%) and consumer discretionary (+2.0%) sectors for the top spot in the yearly sector standings with a 2018 gain of 12.4%. For comparison, tech is up 10.7%, and consumer discretionary is up 10.9%.

Conversely, the communication services sector was the only group to finish in negative territory with a weekly loss of 0.2%.

In earnings, some notable companies that had upbeat reports included Berkshire Hathaway (BRK.B), CVS (CVS), Eli Lilly (LLY), Humana (HUM), and Walt Disney (DIS). On the other hand, Skyworks Solution (SWKS) led chip stocks lower on Friday after it issued below-consensus Q1 earnings and revenue guidance. Skyworks, which is an Apple (AAPL) supplier, warned of slowing chip demand, continuing a disappointing trend out of the semiconductor industry.

On a related note, Japan's Nikkei Asian Review reported that Apple decided to cancel a production increase in its newest low-end iPhone XR. However, the Nikkei also said that demand for the older generation iPhone 8 and iPhone 8 Plus has been higher than expected. Nevertheless, the report corroborated fears over the company reaching peak iPhone sales.

In politics, Attorney General Jeff Sessions resigned his post effective immediately per President Trump's request. Pot stocks initially surged in response to his resignation, as his adamant anti-marijuana stance has been seen as a roadblock to advancing the national discussion for legalization. However, pot stocks pulled back as replacement names currently being floated are against marijuana legalization; acting Attorney General Matthew Whitaker has a mixed record on the issue.

Looking at other markets, U.S. Treasuries had a volatile week, and closed near last week's levels. This week, the 2-yr yield decreased two basis points to 2.91%, and the 10-yr yield added two basis points to 3.21%.

Also of note, WTI crude lost 4.8% this week, entering bear market territory and extending its decline from last month's four-year high. U.S. President Donald Trump granted temporary wavers on Monday to eight countries who import oil from Iran after the U.S.'s energy sanctions on the OPEC member were officially reimposed.

Market Recap - Stocks Stage Rebound Following October Sell-Off

The S&P 500 staged a rebound effort this week, tallying a 2.4% weekly gain. The continued expectation that the market was due for a bounce-back after last month's sell-off, compounded with mostly upbeat earnings and easing trade tensions underpinned the rally.

As for the other major averages, the blue-chip Dow Jones Industrial Average gained 2.4%, the tech-sensitive Nasdaq Composite gained 2.7%, and the small-cap Russell 2000 gained 4.3%.

Cyclical sectors were largely the best-performing groups this week, with the lightly-weighted materials sector (+6.1%) and the heavily-weighted financials (+4.4%) sectors leading the advance. The consumer discretionary sector (+4.0%) also had a notable gain. On the downside, utilities was the only group to settle in the red, losing 0.6%.

U.S.-China trade tensions eased this week, with U.S. President Trump saying that he had a "long and very good conversation" with China's President Xi, adding that the two leaders will be getting together at the upcoming G-20 summit in Argentina. There were some conflicting reports as to whether Mr. Trump has asked his cabinet to begin drafting a trade deal, but the president did say he thinks a deal will eventually be reached.

On the earnings front, Facebook's (FB) third quarter report was "good enough" to temper negativity surrounding the stock, helping to ease growth-related worries. Apple (AAPL), on the other hand, raised some red flags after forecasting softer-than-expected revenue guidance for the holiday quarter and announcing that it will no longer provide unit-sales data for the iPhone, iPad, and Mac.

Other notable companies to report earnings this week included Pfizer (PFE), Coca-Cola (KO), Chevron (CVX), Exxon Mobil (XOM), General Motors (GM), eBay (EBAY), T-Mobile US (TMUS), DowDuPont (DWDP), and Starbucks (SBUX), all of which beat estimates. Conversely, results from General Electric (GE), Kellogg (K), Spotify (SPOT), and Wayfair (W) came in below consensus.

In M&A news, IBM (IBM) acquired Red Hat (RHT) over the weekend for an all-cash offer of $190 per share; that represents a 63% premium over Red Hat's October 26 closing price.

Highlighting this week's batch of economic data was the Employment Situation report for October. Nonfarm payrolls increased by 250,000, higher than the Briefing.com consensus of 190,000, while average hourly earnings increased 0.2% as expected. The unemployment rate remained at a nearly 50-year low of 3.7%. The key takeaway from the report is that it is consistent with labor market trends that will keep the Federal Reserve on a tightening path. The U.S. Federal Reserve will be meeting next week, but no rate hike is expected until December.

Overseas, European and Asian stocks rose with Wall Street this week. In Germany, Chancellor Angela Merkel announced that she won't be seeking re-election as head of the CDU, following disappointing results for her party in a regional election. Her plan, however, is to remain Chancellor until 2021. Meanwhile, the Bank of England and the Bank of Japan released their latest policy decisions, keeping interest rates unchanged.

Market Recap - Growth Concerns Dominate in Very Bad Week For The Stock Market

The stock market just had another terrible, horrible, no good, very bad week, filling in some more blanks on what has been a terrible, horrible, no good, very bad month.

Just how bad has it been?  The Russell 2000 is down 12.5% in October; the Nasdaq Composite is down 10.9%; the S&P 500 is down 8.8%; and the Dow Jones Industrial Average is down 6.7%.

The thrust of matters is that the market is worried about growth.  That might sound odd considering it was revealed on Friday that third quarter real GDP increased at an annual rate of 3.5%, yet it is the sobering message that has resonated loud and clear in the stock market's price action.

The worry isn't about the growth that was just left behind.  Rather, it is about the growth to come -- or perhaps lack thereof.

There are various explanations regarding the causes of the stock market's correction: the adverse effect of a strong dollar; the slowdown in China and other foreign markets; tariff issues, raw material price increases; political uncertainty; diplomatic uncertainty; price increases for consumers; rising interest rates; and profit margin pressures.

Ultimately, they all feed into the one thing that matters most for the stock market: earnings growth.

The clearest evidence that the stock market is wrapped up in worries that future earnings growth won't live up to expectations is in the third quarter earnings results.  They have been quite impressive.

According to FactSet, the blended third quarter earnings growth rate is 22.5%, up from 19.3% on September 30.  What's more is that the forward 12-month EPS estimate has increased by 0.8% over the same period.

Analysts, then, aren't marking down their estimates, yet investors are marking down stock prices sharply, believing those estimates are destined for a downward revision in due time as the effects of tariffs, higher interest rates, and higher operating costs kick in just as the initial thrust of the tax cuts gets kicked out and earnings comparisons become more difficult.

The quantitative result is that there has been a compression in the forward twelve-month P/E ratio to 15.5, versus 16.8, at the beginning of the fourth quarter, according to FactSet, as prices have dropped sharply while the earnings estimate has drifted higher.

Even so, there hasn't been a concerted effort yet to buy into the weakness, which has been unsettling for investors who have grown accustomed to the stock market, and particularly the mega-cap growth stocks, always bouncing back in confident fashion.

The recognition that any strength has been viewed as an opportunity to sell has shaken investor confidence and has contributed to selling efforts on the part of investors trying to secure profits in crowded trades before they disappear altogether.

That would take some time yet for anyone buying at the start of this bull market.  To wit, the S&P 500 is still up nearly 300% from its low in March 2009; nevertheless, the ugly price action of late in key leadership stocks (i.e. the FAANG stocks), key leadership groups (i.e. information technology, communication services, consumer discretionary, financials, and industrials), and the major indices has upset the balance of confidence in the stock market.

That all came home to roost in the week that just concluded.

There were some good reports to be sure and some encouraging reactions to those reports.  Microsoft (MSFT), Tesla (TSLA), Twitter (TWTR), Intel (INTC), and Boeing (BA) come to mind.

However, the stock market wasn't governed by their good news.  It was governed by the disappointing guidance from the likes of Caterpillar (CAT), 3M (MMM), Texas Instruments (TXN), Amazon.com (AMZN), Alphabet (GOOG), Mohawk Industries (MHK), Colgate-Palmolive (CL), and Western Digital (WDC) to highlight a few examples.

Nothing cured the stock market this week, because none of its bugaboos got cured.

It is sounding like the trade war between the U.S. and China could be a prolonged one; Italy sounds as if it is thumbing its nose at the EU's request to revise its budget; Saudi Arabia's explanation for how Washington Post columnist Jamal Khashoggi died had obvious signs of being a cover up; Brexit negotiations have hit another impasse; the U.S. dollar strengthened; and, perhaps most importantly, Federal Reserve officials continued to make their case for why they think further rate hikes are warranted.

The latter is a central component of why the stock market is wrapped up in growth concerns.  It is bothered by the idea that the Federal Reserve is going to raise rates too much, too soon, and choke off the U.S. economy's growth trajectory at a time when foreign economies, namely China and Europe, are already slowing down.

The translation heard from the lips of many pundits is that there is a fear of the Federal Reserve making a policy mistake.

Again, though, that gets back to earnings growth concerns, which have fueled broad-based de-risking in the stock market.  All 11 sectors in the S&P 500 ended lower in the week just concluded.  The real estate sector fared the best with a 1.0% decline while the energy sector fared the worst with a 7.1% decline.

There was nowhere to hide other than in cash and risk-free Treasuries.  Yields fell across the curve. The 2-yr note came down 11 basis points to 2.81% and the 10-yr yield dropped 12 basis points to 3.08%.

The fact that the stock market found little comfort in the drop in market rates was a telltale sign that it was a terrible, horrible, no good, very bad week for a stock market caught up in a correction driven by earnings growth concerns.

Market Recap - Mixed Outing As Earnings Season Ramps Up

Stocks had a mixed outing this week after suffering heavy losses in the week prior. The benchmark S&P 500 finished flat, leaving its October loss at 5.0%, and the blue‐chip Dow ticked up 0.4%. Conversely, the tech‐heavy Nasdaq fell 0.6%, and the small‐cap Russell 2000 lost 0.3%.

The third quarter earnings season ramped up this week after kicking off last Friday. Financial companies Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), U.S. Bancorp (USB), Charles Schwab (SCHW), and BlackRock (BLK) reported mostly better‐than‐expected profits, helping to boost the S&P financial sector 0.8% higher.

Meanwhile, the health care sector rallied 0.5% after Dow components Johnson & Johnson (JNJ) and UnitedHealth (UNH) beat earnings estimates and issued above‐consensus guidance.

Software giant Adobe Systems (ADBE) surged nearly 10% on Tuesday after it reaffirmed fourth quarter guidance and said it expects FY19 revenues to be up 20%. The information technology sector trailed the broader market this week overall though, losing 1.2%. Chipmakers were relatively weak, with the Philadelphia Semiconductor Index falling 2.2%.

Netflix (NFLX) was another notable name on this week's earnings calendar. The streaming media giant beat bottom‐line estimates and reported higher‐than expected subscriber growth by adding nearly seven million new subscribers last quarter ‐‐ six million coming from overseas. However, shares fell later in the week on news that The Wall Street Journal is investigating the company's corporate culture.

Away from earnings, home‐improvement retailers Home Depot (HD) and Lowe's (LOW) sold off on Wednesday following some disappointing housing data. Housing starts rose to a seasonally adjusted annualized rate of 1.201 million units in September, below the Briefing.com consensus estimate of 1.221 million, and building permits declined to a seasonally adjusted annualized rate of 1.241 million, also below the Briefing.com consensus estimate of 1.273 million.

Also of note, retailer Sears Holdings (SHLD) filed for Chapter 11 bankruptcy. While the news was not a surprise, it did generate a sentimental story line given the retailer's storied operating history.

The minutes from the September FOMC meeting were released on Wednesday, showing that officials generally agreed on the need for more gradual rate hikes. In addition, the minutes revealed that a number of officials saw the need to hike rates above levels expected to prevail over the long run. The probability of a December rate hike remains high, ticking up to 83.7% from 79.8% last week, according to the CME FedWatch Tool.

As for the 11 S&P 500 sectors, they finished the week pretty evenly mixed between green and red. Defensive groups like consumer staples (+4.3%), utilities (+3.1%), and real estate (+3.2%) were the top performers, while growth‐sensitive groups like consumer discretionary (‐2.0%), energy (‐1.9%) and materials (‐1.4%) finished at the bottom of the sector standings.

In other markets, U.S. Treasuries slipped this week, pushing yields higher; the yield on the benchmark 10‐yr note climbed three basis points to 3.20%. The U.S. Dollar Index advanced 0.6% to 95.46, but WTI crude fell 2.9% to $69.26/bbl.

The disappearance and alleged murder of Washington Post columnist Jamal Khashoggi pressured U.S. Treasury Secretary Steven Mnuchin into pulling out of next week's Future Investment Initiative conference in Saudi Arabia. President Trump expressed confidence in intelligence reports that the murder was ordered by high‐level Saudi officials but stopped short of putting the blame on Saudi Arabia's crown prince Mohammed bin Salman.

Elsewhere overseas, China's Shanghai Composite touched a new four‐year low this week due to investor concerns over slowing economic growth. On Friday, China reported 6.5% year‐over‐year GDP growth, less than the prior quarter's growth of 6.7% and less than the expected growth of 6.6%. Meanwhile, the Euro Stoxx 50 advanced 0.5% this week despite continued angst that the Italian budget situation could get nasty.

Additionally, Canada became the second country in the world to legalize marijuana on Wednesday, causing a sell‐the‐news reaction in weed stocks.

Market Recap - An Ugly Week on Wall Street

Stocks sold off sharply this week, sending the S&P 500 lower by 4.1%. Fears over potentially weakening economic and earnings growth helped fuel the selling, which left stocks at three-month lows going into the third quarter earnings season. The Dow Jones Industrial Average lost 4.2% this week, and the tech-heavy Nasdaq Composite fell 3.7%.

The International Monetary Fund (IMF) cut its 2018 and 2019 global growth outlook to 3.7% from 3.9% on Tuesday, citing trade uncertainties that include tariffs between the U.S. and China, a pending Brexit deal, and the new trilateral agreement between the U.S., Canada, and Mexico that's supposed to replace NAFTA.

On a related note, President Trump and Chinese leader Xi Jinping have reportedly agreed to meet at next month's G-20 summit with hopes of resolving their trade conflict.

A third quarter earnings warning from specialty chemicals company PPG Industries (PPG) weighed on sentiment this week, dampening hopes of another strong quarter. Financial giants JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) kicked off the Q3 earnings season on Friday with mixed results; JPM and C beat bottom-line estimates, but WFC missed. The financial sector initially had a positive reaction to the earnings results on Friday, but later rolled over to close the week with a total loss of 5.6%. A curve-flattening trade in the bond market didn't bode well for lenders, which depend on the interest-rate differential between what they pay for deposits and what they make on loans.

The yield on the benchmark 10-yr Treasury note, which spiked to a seven-year high last week, hovered between 3.12% and 3.26% before eventually settling Friday at 3.14% -- nine basis points below last Friday's close. Meanwhile, the yield on the more Fed-sensitive 2-yr Treasury note fell four basis points to 2.84%, leaving the 2-10 spread with a five bps point loss for the week.

President Trump blamed this week's selling on the Federal Reserve, which he says has "gone crazy" with its rate hikes. The Fed has raised rates three times this year with the most recent hike coming in September, and it appears to be on track to raise rates again at its December meeting. The CME FedWatch Tool places the chances of a December rate hike at 79.7%; that's down slightly from 80.0% last Friday.

The S&P 500 got into technical trouble this week, breaching its 50-day moving average on Wednesday and then its 200-day moving average on Thursday. The benchmark index tried to reclaim its 200-day moving average on Friday, but closed right at the key technical mark. The Dow Jones Industrial Average and the Nasdaq Composite breached their 200-day moving averages as well; the Dow eventually reclaimed the key technical level, but the Nasdaq did not.

Also of note, the CBOE Volatility Index (VIX), often referred to as the "investor fear gauge," touched its highest level since late March (28.64) before pulling back a bit on Friday. Still, the VIX finished the week roughly 40% higher.

In other news, Hurricane Michael made landfall in the Florida Panhandle on Thursday as a Category 4 storm. The storm has devastated the region, causing billions of dollars in damages and killing at least 13 people. Many oil producers in the Gulf of Mexico halted operations in anticipation of the storm, but WTI crude fell this week nonetheless, dropping 3.9% to $71.41/bbl, and the S&P 500's energy sector lost 5.4%.

Looking ahead, earnings season will ramp up next week with Bank of America (BAC), Charles Schwab (SCHW), UnitedHealth (UNH), Johnson & Johnson (JNJ), Morgan Stanley (MS), Goldman Sachs (GS), IBM (IBM), Netflix (NFLX), Travelers (TRV), American Express (AXP), PayPal (PYPL), Procter & Gamble (PG), and a host of others scheduled to report their quarterly results.

In addition, investors will receive September Retail Sales, Industrial Production and Capacity Utilization, Housing Starts and Building Permits, Existing Home Sales, and the minutes from the September FOMC meeting.