That Was The Worst Week In Four Years - Markets This Morning

  • Major U.S. indices lost between 5.7% to 6.7% in what was the worst week in four years.
  • Tech stocks received an even more ruthless hammering.
  • There's good news from the U.S., but is good news really good news?
  • Keep an eye on oil prices and the Chinese Yuan in the coming week.
  • Markets look like they're heading lower, but a brief rally may precede such a move.
That Was The Worst Week In Four Years - Markets This Morning

Sunday editions aren’t a regular feature in our stock market news section - Markets This Morning, but then, the week gone by wasn’t just another week. It was the worst week in four years for stock markets in most parts of the world, when a spate of unsettling events from around the world overshadowed a rather healthy outlook for the U.S economy, dealing a hard blow to major U.S. indices as well. In this edition, we review key events during the week that shaped market sentiment, and take a quick look at the few positive takeaways, and what to expect in the week ahead.

U.S. Indices Got Thwarted - The Week Gone By, As It Happened

The week began with disappointing news from Japan – the economy had contracted, edging oil prices lower, raising a few concerns. As expected, U.S. indices fell early in the day, down by a fair bit within minutes from the opening bell, but reversed course to end the day in the green as home-builders expressed optimism, backed by buoyant housing starts.

Day two saw a further slide in the Chinese Yuan, and a deeper shade of red on oil prices. The Shanghai Composite’s 6.5% fall didn’t move U.S. indices by quite as much, as the worst hit, the NASDAQ, closed the day 0.64% lower. Sights were now firmly set on the minutes from the Fed’s FOMC meet that were due the next afternoon. Given the panic that had been triggered by the falling Chinese Yuan, which also lead to a strong Dollar, markets didn’t expect to see much intent towards a rate hike in September.

The verdict, the Fed’s reluctance to hike rates, failed to lift the markets though, as a 5% drop in oil prices hogged the limelight, dragging major U.S. indices between 0.8% and 0.93% lower. However, things really got ugly during the last two trading sessions of the week.

Thursday saw the markets getting thwarted, with further slippages in Chinese markets and oil, while existing home sales touched an eight year high to revive worries about a rate hike.

Friday brought what was possibly the worst for the markets, with China’s PMI data indicating that manufacturing activity was at its lowest in 77 months. Needless to say, oil prices plunged below the $40 mark, breaking the psychological barrier to reach levels it was last seen at in 2009. What’s worse, this was also the longest falling streak in 29 years. All of this, and the fact that bearish bets on Yuan were stacked at a five year high culminated in the broad based S&P 500 ending the week down 5.73%, the NASDAQ falling 6.71% and the Dow sliding by 5.79%.

Most Stocks Took An Even Bigger Beating

The indices look bad no doubt, but as it turned out, all the news put together spewed a lot more red ink on individual stocks. There wasn’t any place to hide, even for innovation leaders and popular names in the tech space, where the valuations can get hazy, at least by the tenets of value investing.

Stock Weekly % Change Stock Weekly % Change
GoPro (NASDAQ:GPRO) -17.8% Sina (NASDAQ:SINA) -8.8%
Ambarella (NASDAQ:AMBA) -17.4% eBay (NASDAQ:EBAY) -8.8%
Plug (NASDAQ:PLUG) -16.2% Alibaba (NYSE:BABA) -8.8%
Netflix (NASDAQ:NFLX) -15.7% Microsoft (NASDAQ:MSFT) -8.4%
Micron (NASDAQ:MU) -14.3% Akamai (NASDAQ:AKAM) -7.3%
Yandex (NASDAQ:YNDX) -14.1% Amazon (NASDAQ:AMZN) -7.0%
Vipshop (NYSE:VIPS) -13.0% Baidu (NASDAQ:BIDU) -6.9%
Twitter (NYSE:TWTR) -11.0% BlackBerry (NASDAQ:BBRY) -6.7%
Tencent -10.5% Google (NASDAQ:GOOG) -6.6%
PayPal (NASDAQ:PYPL) -10.2% Expedia (NASDAQ:EXPE) -5.9%
NetEase (NASDAQ:NTES) -9.4% LinkedIn (NYSE:LNKD) -5.3%
Yahoo (NASDAQ:YHOO) -9.1% Groupon (NASDAQ:GRPN) -5.3%
Apple (NASDAQ:AAPL) -8.9% Priceline (NASDAQ:PCLN) -5.2%
Gilead (NASDAQ:GILD) -8.9% Tesla (NASDAQ:TSLA) -5.1%
Facebook (NASDAQ:FB) -8.9% TripAdvisor (NASDAQ:TRIP) -4.1%

Some of these names, like Tesla, Amazon, Google, Facebook and GoDaddy among others were actually in the green at Wednesday's close, until oil prices finally took them down with the rest of the markets.

As for new updates, Twitter and Google have deepened their data integration to span desktop search as well, implying that tweets from the social network will now show up in search results on desktops. That apart, Tesla CEO Elon Musk has reportedly spent a little over $20 million to acquire 82.6 thousand shares of the company's stock. Keep an eye on these stocks on Monday.

At large though, the outlook remains hazy and inconclusive.

What Now? When Good News Becomes Bad News And Vice Versa

For the U.S., things are looking better on the whole, unless we see more oil/energy companies going down. Unemployment benefit applications are at a 15 year low, housing starts at a 5 year high, existing home sales at an 8 year high, and the Fed seems to think the time is approaching for a rate hike. In reality, that’s good news, signaling that the economy is getting back on track. However, every piece of good news that emerges from the U.S. seems to trigger fear and speculation from the markets, on the timing of the Fed’s rate hike. So good news isn’t really good news?

The same is the case with news from everywhere else. News of a slower than expected growth in the German economy – normally a bad thing, but could it restrain the Fed’s hand? That’s probably a question that’s being asked every time unpleasant news arrives. Japan contracts, oil prices fall, the Yuan falls, the Dollar gets stronger – all of these developments are most likely being seen as events that could dissuade the Fed from near term rate hikes, rather than as events in themselves.

What Happens In The Markets Next Week?

At last count, more oil rigs were being added by U.S. energy firms, and with supply from Iran likely to say 'me too', things don't look great for oil producers or oil prices. Now that concerns of deflation are emerging owing to the glut in oil prices, and given the rest of the developments, rate hikes might not be a immediate worry, though oil probably is.

That apart, the Yuan and the Chinese stock markets are a must watch, of course. The last time the Shanghai Composite was at around these levels on July 8th 2015, we saw an unprecedented government intervention to support share prices. If that happens again, there could be some support for the markets on Monday.

Either way, the backdrop of a rate hike is shaping the context and interpretation of each news item, and it's still hazy what can and can't be construed as good news. There's only one way to find out - after the bell on Monday.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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