Saturday, February 10, 2018

Stocks Continue Downward Spiral Second Straight Week

With stocks rallying on Friday, the disastrous second straight week of declines came to a relieving finish for equity longs, but not without significant teeth-gnashing through the tortuous five trading days.

The Dow and S&P 500 each entered correction territory on Thursday, as the blue chip index posted its second-largest single-day point decline. With the focus on the 10% down mark, Friday's gains may serve only as a temporary salve to many frayed nerves.

With the Dow Industrials still down nearly 2000 points in just the first seven trading days of February it's going to take quite an effort to regain all-time highs. The major indices peaked simultaneously in late January, but it's been all downhill since then, and the probable causes for such a shakeout are still in effect, if not even more exacerbated in the case of bond yields.

Globally, outflows from equity funds set a record, as investors pulled $30.6 billion out in the week through Wednesday, according to global fund tracker EPFR.

Breaking down those flows, the U.S. dominated with a record $33 billion in equity redemptions, while Europe saw $3.3 billion exit, the largest in 79 weeks. Japan saw the strongest equity inflows in 65 weeks at $2.4 billion, while $2.4 billion flowed into emerging markets, according to Bank of America Merrill Lynch.

Weekly declines in US markets were uniform, as the four major indices were all lower by at least five percent, led by the Dow, at 5.21%.

The 10-year-note closed out the week at 2.83%, a level seen promoting a massive shift from stocks to bonds and risk to relative safety. Crude oil slipped to its lowest level of the year, finishing off Friday at $59.05. Though not directly related to the equity selloff, crude prices have been elevated for the past two months until they were devastated by a massive increase in supply, reported this week.

Precious metals prices were muted, falling along with stocks, bonds and nearly every other asset class.

Trickling out from the corners of mouths were murmurings of getting long art, transportation, real estate and anything tangible.

Obviously, the correction is not over, having barely dipped a toe into the -10% water. It would not be unusual to see stocks bounce early next week and possibly beyond, though a retest of the prior lows is all but inevitable.

While caution had been thrown to the wind all of last year and through January of this year, consensus sentiment has changed dramatically and markets are likely to remain unstable until volatility subsides. That may not happen for some time, since the past nine years of bank-and-buyback-induced stock profits have been characterized by extremely low levels of volatility.

The past two weeks have been witness to a fundamental change in many regards. Extreme greed turned to a healthy level of fear in just a few days.

Rising rates and the prospect of profligate spending at the federal level point to further declines in the equity complex.

Dow Jones Industrial Average February Scorecard:

Date Close Gain/Loss Cum. G/L
2/1/18 26,186.71 +37.32 +37.32
2/2/18 25,520.96 -665.75 -628.43
2/5/18 24,345.75 -1,175.21 -1,803.64
2/6/18 24,912.77 +567.02 -1,236.62
2/7/18 24,893.35 -19.42 -1,256.04
2/8/18 23,860.46 -1,032.89 -2288.93
2/9/18 24,190.90 +330.44 -1958.49

At the Close, Friday, February 9, 2018:
Dow Jones Industrial Average: 24,190.90, +330.44 (+1.38%)
NASDAQ: 6,874.49, +97.33 (+1.44%)
S&P 500: 2,619.55, +38.55 (+1.49%)
NYSE Composite: 12,405.82, +135.17 (+1.10%)

For the Week:
Dow: -1330.06 (-5.21%)
NASDAQ: -366.46 (-5.06%)
S&P 500: -142.58 (-5.16%)
NYSE Composite: -679.53 (-5.19%)

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