Will Tuesday’s Stock Market Carnage Already Be Forgotten About on Thursday?

December 5, 2018 by Jon C. Ogg

Tuesday’s major U.S. stock market selling went from bad to worse as buyers were merely absent ahead of the rare mid-week closure of the U.S. financial markets as a day of mourning for President George H.W. Bush. One problem with Tuesday’s sell-off is that the news behind the drop was seemingly not enough on the surface to merit such a strong decline. Trading volumes in the key stocks were also not generally representative of a widespread panic either. And to make matters worse, this created what chartists would think of as technical damage by wiping out all of Monday’s gains and then a lot more.

24/7 Wall St. took a snapshot of the changes seen in U.S. markets and the follow-on selling that might have been expected in the international markets just simply did not mirroring the drop in the U.S. markets. This could be one of those instances when the markets simply got ahead of themselves at a time when no buyers were willing to take on more risk.

The drop in market prices was tied to mixed economic readings, more slowing in housing, some doubts about a real deal happening with China during the 90-day extension, and some bad news from the United Kingdom about the legitimacy of Brexit. And the very stable Dollar General Corp. (NYSE: DG) sold off handily after earnings.

Here were Tuesday’s top closing bell levels for the major equity and fixed income markets, shown with point and percentage drops:

  • S&P 500 closed at 2,700.06, down 90.31 for a 3.24% drop.
  • The Dow Jones Industrial Average closed down at 25,027.07, a drop of 799.36 or 3.10%.
  • The Nasdaq Composite closed at 7,158.43, a loss of 283.09 points or 3.80%.
  • The Russell 2000 closed down at 1,480.75, a drop of 68.21 points for a 4.40%
  • The yield on the 10-year Treasury Note closed almost seven basis points lower at 2.924%.

But if we look at some of the international plays on Tuesday, the drop just wasn’t as much. Canada’s S&P/TSX Composite Index closed down 1.4%, after falling 211.39 points to 15,063.59. And the iShares China Large-Cap ETF (NYSEARCA: FXI) closed down just 1.48% ($0.63) at $42.02 on Tuesday. If the trade deal really already was crumbling, it would be showing up in that ETF in a way that would probably be worse for it than it would be for the U.S. major equity indexes.

In mid-morning hours in the United States, again with U.S. markets closed on Wednesday, the overseas markets just did not mirror the same major drop seen in the U.S. markets on Tuesday. Here is how some of the major markets were looking, with some already closed and some about to close later on Wednesday:

  • The United Kingdom’s FTSE 100 was down 77.72 at 6,945.04, for only a 1.1% drop.
  • Germany’s DAX was down 85.31 points, or just 0.76%, at 11,249.35.
  • Japan’s Nikkei 225 closed down 116.72 at 21,919.33, for a drop of a mere 0.53%.
  • Hong Kong’s Hang Seng Index closed down 440.76 at 26,819.68, a loss of 1.62%.
  • And the Shanghai SSE Composite Index tracking Mainland China was down just 0.6%, after falling 16.15 points to 2,649.81.

If the international markets did not echo the U.S. market drop, and if the United States is still the safest game in the major economies, maybe Tuesday really was an overly exaggerated sell-off that was too drastic. That said, who knows what Thursday’s news flow will bring. And if you have read 24/7 Wall St. for very long, you have been told over and over that the so-called Efficient Market Hypothesis is simply a wonderful theory based on fancy and not based on reality. Ask yourself this: Have the markets really been good at factoring in any major events in the last few years?

Where some of the carnage was most evident was in the top index stocks on Tuesday. Some of these drops were significantly worse than the broader markets. Unfortunately, that may not assure a serious snapback rally on Thursday when U.S. markets reopen, but some of the major losses in the top stocks driving the market seemed more than excessive. Here were the losses seen in the top Dow stocks, with weightings included, that need to be looked at rather closely when Thursday’s trading begins after Wednesday’s rare market closure:

  • Boeing Co. (NYSE: BA) was down 4.85% at $342.50, a drop of 17.46 points. It is the top Dow weighting, with about 9.3% of the index’s weighting. Boeing’s share volume of 5.2 million shares trading hands was about 25% higher than its average volume.
  • UnitedHealth Group Inc. (NYSE: UNH) is now the second highest Dow weighting at over 7.5%, and it was down 2.7% ($7.78) at $278.55. Its volume of over 4.6 million shares was about one-third higher than normal.
  • 3M Co. (NYSE: MMM) still has roughly 5.5% of the Dow’s weighting, and its share fell by 3.14% (−$6.56) to $202.20. Trading volume was not higher than normal at almost 2.7 million shares.
  • Goldman Sachs Group Inc. (NYSE: GS) has seen its problems continue, and its weighting in the Dow is down to barely under 5%. Its shares fell $7.32, or 3.8%, to $184.31, and the trading volume of almost 5.8 million shares was about 66% higher than normal.
  • Apple Inc. (NASDAQ: AAPL) has seen its weight in the Dow come down to about 4.8%, but the mighty Apple shares fell by $8.13, for a 4.4% loss, down to $176.69 on Tuesday. Its 41.3 million shares trading hands was only about 10% above normal.
  • Home Depot Inc. (NYSE: HD) was down 3.5%, or $6.44, at $175.30, and the 5.06 million shares traded on Tuesday was only about 20% above normal.

Several defensive stocks were actually higher or hardly fell on Tuesday, as many investors know they should go “hide out” in the safest stocks that might not have to worry about mere economic blips and macro news as the technology, finance, industrials and other cyclical plays. McDonald’s Corp. (NYSE: MCD) is defensive by nature, and it has a 5% weight in the Dow, but it was down only about 0.1%. And American Water Works Co. Inc. (NYSE: AWK), the ultimate safety trade in water utilities, actually posted a tiny gain on Tuesday. And shares of Procter & Gamble Co. (NYSE: PG) were down a mere one cent at $93.31 on Tuesday during the market carnage. Duke Energy Corp. (NYSE: DUK) squeezed out a $0.43 gain (0.48%) to $90.05, and its shares even hit a 52-week high.

And here is how some of the most widely followed S&P 500, Dow and other go-to bull market stock trading dropped on Tuesday:

  • Advanced Micro Devices Inc. (NASDAQ: AMD) fell $2.59 (10.92%) to $21.12, but its 127 million shares was only about 4% above its average daily volume.
  • Amazon.com Inc. (NASDAQ: AMZN) fell $103.96 (5.87%) to $1,668.40. Its 8.7 million shares traded on Tuesday was about 30% above normal.
  • Caterpillar Inc. (NYSE: CAT) fell $9.63 (6.93%) to $129.32, and its 8.1 million shares was about 30% above average.
  • Micron Technology Inc. (NASDAQ: MU) closed down $3.15 (7.87%) at $36.88.
  • Nvidia Corp. (NASDAQ: NVDA) fell a sharp $12.93, or 7.6%, to $157.11, but its 20.3 million shares trading hands was about 40% above average.
  • Square Inc. (NYSE: SQ) fell $8.44 (11.7%) to $63.51.
  • United Rentals Inc. (NYSE: URI) fell by $12.97 (10.88%) to $106.29.

OK, well that should be enough of a reminder that Tuesday’s stock market selling felt like carnage that may have been much worse than what was deserved.

And to think about this for size, while President Trump has tweeted that he hopes for a trade deal with China but he will impose the tariffs after 90 days if no deal is reached, Reuters reported on Wednesday morning that China believes trade talks with the United States will be successful:

China expressed confidence on Wednesday that it can reach a trade deal with the United States, despite fresh warnings from President Donald Trump that he would revert to more tariffs if the two sides cannot resolve their differences.

The remarks by the Chinese Commerce Ministry follow a period of relative quiet from Beijing after Trump and Chinese leader Xi Jinping reached a temporary truce in their trade war at a meeting over dinner in Argentina on Saturday.

In a brief statement on its website, the ministry said China would try to work quickly to implement specific issues already agreed upon, as both sides “actively promote the work of negotiations within 90 days in accordance with a clear timetable and road map”.

And The Wall Street Journal’s lead story’s synopsis of “China Says There Is ‘Clear Timeline’ on Trade Negotiations” said:

Beijing is beginning to flesh out details of a weekend tariff truce with the U.S., after days of vague Chinese statements and a barrage of comments from President Trump and other administration officials.

Wednesday’s market closure and the lack of a serious follow-through selling overseas sets Thursday up to be an exciting day. Now we just have to see whether the market trading is rational. Stay tuned.