November 18, 2024

After a huge runup in the days following the election, things came crashing down on Friday for the worst week since September and the fourth day in a row lower for the Nasdaq.

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The Dow dropped by 306 down to 43,444 led by large declines in AMGN, AMZN, CRM, SHW, IBM, MCD, MSFT and NVDA. The S&P got crushed by 78 to 5870 by the downside technology disaster and the industrials were weak as well.

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The Nasdaq got destroyed by 427 down to 18,680 in the old “high tech is high wreck” situation while the Russell 2000 Index of small stocks also got wiped out by 33 down to 2304.

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And once again, I had been saying that the VIX was too low to sustain much further gains earlier in the week when it got as low as 13.66 and would one rather by bullish or bearish when it got as low as that?

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Makers of vaccines helped drag the market down after President-elect Trump said he wants Robert F. Kennedy Jr., a prominent anti-vaccine activist, to head the Department of Health and Human Services. MRNA collapsed by more than 7% and PFE got rocked for almost 5% amid concerns about a possible hit to profits.

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Kennedy still needs confirmation from the Senate to get the job, and some analysts are skeptical about his chances. If Kennedy is confirmed, it is hard to bookend risks for investors as his views are so outside the traditional Republican health policy orthodoxy, remarked a former HHS official who now works as a health policy analyst and added that “Investors may need to forget everything they thought they knew about Republicans and healthcare as this appointment may make it less likely traditional qualified experienced (Republican) staff will agree to join HHS, creating more uncertainty.”

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Biotech stocks broadly sank to some of the market’s worst losses, but the sharpest drop in the S&P came from AMAT which fell 9% even though it reported a stronger profit for the latest quarter than analysts expected.

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The provider of manufacturing equipment and services to the semiconductor industry gave a forecasted range for upcoming revenue whose midpoint was short of analysts’ expectations.

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The pressure is on companies to deliver big growth, in part because their stock prices have been rising so much faster than their earnings. That has made the broad stock market look more expensive by a range of measures, which has critics calling for at least a fade. The S&P is still up by 23% for the year and not far from its all-time high set last Monday, despite this past week’s weakness.

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Stocks had been broadly roaring since Election Day, when the victory sent a jolt through financial markets worldwide. Investors immediately began sending up stocks of banks, smaller U.S. companies and cryptocurrencies as they tried to decide on the winners coming out of the new President’s preference for higher tariffs, lower tax rates and lighter regulation.

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But investors are also taking into account some of the potential downsides from Trump’s return to the White House.

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Besides Friday’s hit to vaccine makers, Treasury yields have been climbing on both the economy’s surprising resilience and worries that his policies could result in larger government deficits and faster inflation.

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That has forced traders to recalibrate how much relief the Federal Reserve could provide for the economy next year through cuts to interest rates. The Fed earlier this month lowered its main interest rate for the second time this year, and past forecasts indicated Fed officials saw more cuts as likely through 2025. Lower interest rates can act as fuel for the economy and stock market, but they can also put upward pressure on inflation.

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But what really did the market in late Thursday and Friday were comments from Fed Chair Jerome Powell suggested that the central bank might be cautious about future decisions on interest rates. “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said, though he declined to discuss how Trump’s potential policies could alter things.

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Traders have since ratcheted back forecasts for whether the Fed will cut rates again at its meeting next month, though they still see better than a coin flip’s chance of it, according to data from CME Group.

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On Friday, Treasury yields edged down in the bond market after swinging following several reports on the economy.

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One showed that shoppers spent more at retailers (0.4% and ex-autos just 0.1%) last month than expected, another signal that the most influential force on the economy remains solid.

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Many consumers were reporting that they were putting off trips and big ticket item purchases until after the election and businesses reported they were putting off capital investment due to the election. Now that the uncertainty of the outcome is behind us, we could see some decent ‘relief spending.’

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Friday’s data on retail sales, though, may not be quite as strong as it appeared. After taking away purchases of automobiles, sales at retailers were weaker last month than economists expected.

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The 10-year Treasury’s yield held at 4.44%, where it was late Thursday, after swinging up and down. The two-year yield, which more closely tracks expectations for Fed action, fell to 4.31% from 4.36% late Thursday.

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In stock markets abroad, London’s FTSE 100 fell 0.1% after data from the Office for National Statistics showed that economic growth slowed to 0.1% in the July-September quarter from the 0.5% in the previous quarter. It was weaker than expected.

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Tokyo’s Nikkei 225 gained 0.3% after data showed growth for Japan’s economy accelerated in the latest quarter, even as the Bank of Japan raised interest rates in July.

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Earnings for the third quarter are coming to an end with the following lineup this week: Tuesday – Dow component WMT plus LOW and LZB; Wednesday – the big one, namely NVDA plus PANW, JACK, NIO, SNOW, WSM and TGT; Thursday – DE, GPS, INTU, BIDU, ROST, WMG.

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Economic reports will have: Tuesday – October housing starts; Thursday – October L.E.I., weekly jobless claims; Friday – final November U. of Michigan Consumer Sentiment Survey.