Tech Rout Spreads to Other Sectors; Bonds Signaling Slowdown

We have seen this show before.

Jittery markets, just off fresh all-time highs, make dramatic swings to the downside.

For the past nine years running, such activity has typically been followed by aggressive "dip-buying" and soon thereafter, new all-time highs on all the major indices.

Is this time different?

It's tempting to say that it is, especially for analysts who have been consistently wrong about market corrections during the grand recovery, but, it's probably nothing, unless...

... one considers the US treasury bond complex and its fast-collapsing curve, which currently has the spread between between a 2-year bill (1.80%) and the 10-year-note (2.34%) at a mere 54 basis points. The 2/30 spread is a minuscule 92 basis points (1.80%-2.72%), but perhaps most troubling is the tiny, 21 basis points between the 5-year and 10-year note.

The five-year note is yielding 2.13%.

Why does this matter? There are a number of good reasons, primarily, because in banking, one typically buys short-duration and lends long duration, making money on the spread. But, if there is no spread, there's scant money to be made and only a relative few defaults on long loans (such as occurred during the sub-prime crisis) can cause calamity for the lenders.

Also, the danger of inversion is weighty, occurring when a shorter-duration bond yields higher than a longer-duration. Such inversion might occur between the fives and tens, where the spread is - as mentioned above - only 21 basis points (0.21%).

Inversion matters because it signals that investors have no appetite for anything of long duration (loss of confidence) and are attempting to get all the yield on the short end, as quickly as possible. Every time bond yields have inverted in the past 90 years of market history, a significant inversion has been followed by a recession.

So, while Wall Street is enjoying salad days in stocks, the bond market is worrying, as Main Street finds difficulty in borrowing for the future.

The tide in stocks may also be turning, as evidenced yesterday as the Dow took over the lead in the relentless decline experienced in the NASDAQ. At this point, all stocks are at risk, probably due to the threat of yet another government shutdown, looming close at December 8. The November non-farm payroll report Friday could be the catalyst to send stocks even lower and bond spreads tighter. Extreme caution is advised the remainder of the week, noting that holiday season stock routs are extremely rare events. They usually happen in January.

In conclusion, this time is not different. It's the same as it always has been. Periods of stock euphoria are usually followed by recession. Boom-bust. Nothing lasts forever. To think so is pure tom-foolery.

At the Close, Tuesday, December 5, 2017:
Dow: 24,180.64, -109.41 (-0.45%)
NASDAQ: 6,762.21, -13.15 (-0.19%)
S&P 500: 2,629.57, -9.87 (-0.37%)
NYSE Composite: 12,567.16, -67.73 (-0.54%)

FAANGs, NASDAQ Under Assault as Investors Book Profits

Profit-taking in tech stocks continued on Monday as high-flying, high-p/e companies known affectionately as the FAANGs (Facebook, Apple, Amazon, Netflix, and Google) were subjected to relentless, high-volume selling.

For the record, here's how these tech darlings fared on Monday:
Facebook (FB) 171.47, -3.63 (-2.07%)
Apple (AAPL) 169.80, -1.25 (-0.73%)
Amazon (AMZN) 1,133.95, -28.40 (-2.44%)
Netflix (NFLX) 184.04, -2.78 (-1.49%)
Alphabet (Google, GOOG) 998.68, -11.49 (-1.14%)

General holders of these stocks are not yet alarmed over the losses which began a week ago, following the last-gasp ramping over Black Friday and Cyber Monday, because the companies have been among the best performers since January.

What is apparent is that investors are taking profits made in these stocks - none of which, other than Apple, offers dividends - and investing largely in Dow companies, all of which provide dividends to shareholders.

There's nothing unusual about what analysts typically call "sector rotation," except that the movement is quite pronounced. The S&P and Dow have outperformed the NASDAQ for six straight sessions.

With the markets less than two hours from the opening bell on Tuesday, futures are diverging wildly, with Dow futures up in the range of 130 points, while NASDAQ futures are falling by 90 points or greater.

At the Close, Monday, December 4, 2017:
Dow: 24,290.05, +58.46 (+0.24%)
NASDAQ: 6,775.37, -72.22 (-1.05%)
S&P 500: 2,639.44, -2.78 (-0.11%)
NYSE Composite: 12,634.89, +20.33 (+0.16%)

Dow Posts Best Week Of Year; NASDAQ Falls

Confused?

In what was the best performance week of the year for the Dow (a nearly three percent gain), the NASDAQ lost more than one half percent.

The math is fairly simple. Outside of Apple (AAPL), which is a component of Dow 30 stock, the FAANGs (Facebook, Apple, Amazon, Netflix and Google) all got beaten down.

Facebook (FB) lost 1.78%.
Netflix (NFLX) was down 0.41%.
Amazon (AMZN) fell 1.44%, and Google (GOOG) dropped 1.10%. Additionally, another of the high-fliers, Tesla (TSLA) shed 0.75%.

Those stocks make up a mammoth portion of the total volume on the NASDAQ, thus nullifying any gains by all other stocks on the index.

Fear not, however, holders of high P/E paper, because since the Senate tax legislation was cleared Saturday morning by a narrow margin, all is well in the land of the free. Monday morning futures are pointing to a moon shot open.

For the Week Ending December 1, 2017:
Dow: +673.60 (+2.86%)
NASDAQ: -41.57 (-0.60%)
S&P 500: +39.80 (+1.53%)
NYSE Composite: +192.63 (+1.55%)

Dow Gains, NASDAQ Falls, Bitcoin Up, then Down, Precious Metals Hammered

Dow stocks led the way on the second last day of November, as tech stocks (especially the FAANGS) were beaten down on the NASDAQ, suffering a loss of more than one percent - a rare occurrence these days.

Bitcoin ramped up over $11,000, before crashing. Silver and gold were flogged, as has been the case for too long as central banks struggle for survival in an increasingly fractured global environment.

Governments are still hanging onto their taxing powers, but it's becoming increasingly apparent in the West that promises made to workers - especially public employees - via pensions, are going to be revised.

The final day of the month signals new all-time highs as window dressing will be in effect. Republicans in congress hope to hold a vote on tax reform either Thursday or Friday. The margin of error for passing a bill is very slim as Republicans hold a small majority and all Democrats are expected to vote against any tax bill.

At the Close, Wednesday, November 29, 2017:
Dow: 23,940.68, +103.97 (+0.44%)
NASDAQ: 6,824.39, -87.97 (-1.27%)
S&P 500: 2,626.07, -0.97 (-0.04%)
NYSE Composite: 12,561.32, +41.09 (+0.33%)

All-Time Highs Becoming the Norm on Wall Street

Even though a potential government shutdown and another rate hike by the Fed are just weeks away, stock investors don't seem to care.

All the major indices rocketed out of the gate to impressive gains on Tuesday, eviscerating previous records.

As Wednesday morning approaches the opening bell, news that third quarter GDP was revised higher in the second estimate, to 3.3%, has futures kicking higher.

While Bitcoin surpassed $10,000 per coin on Tuesday night, the Dow might one-up the cryptocurrency by hurtling past 24,000 on Wednesday. The Dow Industrials passed the 22,000 mark on September 11, and cruised above 23,000 on October 18, so, ripping through 24,000 in just over a month wouldn't be much of a surprise.

At the Close, Tuesday, November 28, 2017:
Dow: 23,836.71, +255.93 (+1.09%)
NASDAQ: 6,912.36, +33.84 (+0.49%)
S&P 500: 2,627.04, +25.62 (+0.98%)
NYSE Composite: 12,520.23, +129.45 (+1.04%)