The Week In Review



The S&P 500 fell 1.9% on Friday to extend its monthly loss to 5.8%. Friday's sell-off was a function of poor sentiment driven by global growth concerns and a continuation of weak price action. 

The Dow Jones Industrial Average lost 2.0%, the Nasdaq Composite lost 2.3%, and the Russell 2000 lost 1.5%. For the month, the respective indices are down 5.6%, 5.7%, and 8.0%.

The selling started overseas when China, the second-largest economy in the world, reported some weaker-than-expected industrial production and retail sales data. In addition, some weaker-than-expected preliminary manufacturing PMI readings out of the eurozone helped feed into concerns over economic growth and corporate earnings prospects.

A solid November Retail Sales report out of the U.S. didn't change the selling bias either.  Instead, the good news on that front was drowned out by the concern that weakness abroad will eventually lead to a slower pace of growth in the U.S.

Selling picked up after the close of the European markets (11:30 a.m. ET) and would continue in an orderly manner throughout the day, culminating in the S&P 500 closing just below 2600.

Within the S&P 500, the health care (-3.4%), information technology (-2.5%), and energy (-2.4%) sectors led the broad-based retreat.

The negative bias within the health care and tech groups was driven by some corporate news, while energy fell in tandem with oil prices.

Johnson & Johnson (JNJ 132.80, -14.84) dropped 10.0% after a Reuters report alleged that JNJ "knew for decades that asbestos lurked in its baby Powder." The company's litigation counsel rejected the report as "false and misleading."

Within tech, Apple (AAPL 165.48, -5.47, -3.2%) fell after an influential analyst from TF International Securities cut his first quarter 2019 iPhone shipment estimate by 20%, according to CNBC; Adobe Systems (ADBE 230.00, -18.08, -7.3%) fell after failing to overly impress investors with its fiscal fourth quarter results and outlook; and Cisco (CSCO 45.82, -1.65, -3.5%) fell after being downgraded to 'Neutral' from 'Buy' at Nomura.

In other corporate news, Costco (COST 207.06, -19.45) fell 8.6% after reporting its fiscal Q1 results, which included revenues that were slightly below consensus. Margin weakness, attributed to higher merchandising costs, also weighed on the stock.

There was little room to hide in the stock market, though the defensive-oriented real estate (-0.2%) and utility (-0.3%) sectors suffered only modest losses.

Investors sought safety in U.S. Treasuries, pushing yields lower across the curve. The 2-yr yield lost three basis points to 2.73%, and the 10-yr yield lost two basis points to 2.89%. Also, the U.S. Dollar Index rose 0.4% to 97.45, nearing a yearly high.

Reviewing Friday's economic data, which included Retail Sales for November, Industrial Production and Capacity Utilization for November, and Business Inventories for October:

  • Total retail sales increased 0.2% in November, as expected, while retail sales, excluding autos, jumped 0.2% ( consensus +0.3%).
    • The key takeaway from the Retail Sales report is that core retail sales, which exclude auto, gasoline station, building materials, and food services and drinking places sales, increased 0.9%. That's important because core retail sales are used in the computation of the goods component for personal consumption expenditures in the GDP report.
  • Industrial production increased 0.6% in November ( consensus 0.3%) after declining a downwardly revised 0.1% (from +0.2%) in October. The capacity utilization rate was 78.5% ( consensus 78.6%) following a downwardly revised 78.1% (from 78.4%) in October.
    • The key takeaway from the report is that manufacturing output was flat on the heels of a 0.1% decline in October. That indication runs counter to the solid uptick seen in the November ISM Manufacturing Index.
  • Total business inventories increased 0.6% in October, in-line with the consensus estimate, after increasing an upwardly revised 0.5% (from 0.3%) in September. Total business sales increased 0.3% after increasing a downwardly revised 0.3% (from 0.4%) in September.
    • The key takeaway from the report is that business sales rose at a slower pace than inventories. That distinction, if it persists, will diminish pricing power.

Looking ahead, investors will receive the NAHB Housing Market Index for December, the Empire State Manufacturing Survey for December, and Net Long-Term TIC Flows for October on Monday.

  • Nasdaq Composite +0.1% YTD
  • Dow Jones Industrial Average -2.5% YTD
  • S&P 500 -2.8% YTD
  • Russell 2000 -8.1% YTD

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