The market released a lot of pent-up concerns and frustrations with Friday’s sharp selloff, which ruined what could have been another solid week for the major indices.
In the end though, this week’s actual losses were not as brutal as today’s session felt. The Dow was off by approximately 1.3%, while the S&P and NASDAQ each shed less than 1%. The indices went into Friday’s session with gains for the week so there was a good cushion for the pullback, while the S&P still managed to stay above 2800 by a slim margin.
Investors have been worried about a slowing global economy for a while now, and yet our market has still been moving higher. But soft manufacturing numbers out of Europe and the U.S. were too much to handle today, especially coming after a sudden dovish turn from the Fed. Two days removed from the Committee’s decision to not hike rates for the rest of 2019, already skittish investors are now wondering if the about-face is indication that the slowdown is worse than expected.
Adding to the cautious sentiment was the inverted yield curve between the 3-month Treasury bill and the 10-year note. Such a move is considered to be a signal of recession down the road… not immediately but several months from now. We’ll see...
That’s a lot for the market to take in! It’s no wonder that it didn’t have the wherewithal to shrug it off on Friday in the wake of such a strong start to 2019.
The NASDAQ was outperforming its counterparts all week as tech has been very strong, but today it took the biggest step back. The index slipped 2.5% (or nearly 200 points) to 7642.67. The Dow dropped 1.77% (or about 460 points) to 25,502.32.
The S&P had just as bad a day as the others, but this index was able to barely hang onto the important 2800 mark. It was down 1.9% to 2800.71.
So is this the start of a broader pullback or a buying opportunity? The funny thing is that folks always talk about how healthy and necessary pullbacks are after long runups… yet when one actually comes along we turn it up to eleven and proclaim it as a harbinger of doom.
It should take more than one sharp pullback to panic the bulls. Let’s see what next week has in store before stampeding toward the exits.
Today's Portfolio Highlights:
Healthcare Innovators: Shares of Biogen (NASDAQ:BIIB) lost over 30% -- and $20+ billion of market cap -- in 2 days after its Alzheimer’s drug failed Phase 3 trials. Now, the mega biotech may be looking to buy other small life-sciences companies to help refortify its central nervous system pipeline… and Kevin thinks that bodes well for a gene-editing innovator like Sangamo Therapeutics (SGMO). The company’s zinc finger nuclease technology platform holds potential for treatments in several types of unmet medical needs, including Hemophilia A, Sickle Cell, and 3 other genetic expressions. The editor likes the risk/reward with this name at under a $1 billion market cap, so he added it to the portfolio on Friday with specific buy window guidelines. Read the complete commentary for a detailed analysis on SGMO, including what the analysts are all saying.
Technology Innovators: There’s a buying opportunity in the healthcare tech space. Shares of Inovalon Holdings (INOV) dropped approximately 20% after the company missed quarterly earnings estimates. However, guidance for the rest of the year was not terrible, so Brian Bolan decided to buy the dip and add INOV to the portfolio on Friday. The editor also sees a good recipe for a squeeze in this name as 17% of the float is sold short. Read the complete commentary for more on this new buy.
Value Investor: "We've also had yield inversion, which has meant a recession within 6 to 18 months afterwards. Some will maybe argue "this time will be different" but in the modern era, that simply hasn't been the case.
"I've been saying all along that we shouldn't fear a recession. They are a normal part of the business cycle. I know most people are scared because they remember 2009 all too well. (Don't we all.)
"But do you remember the 2000-2001 recession? Most don't because, outside of Silicon Valley, it simply wasn't that bad. It was a standard, garden variety slowdown. After ten years of outsized growth, a slowdown is to be expected.
"Let's see what the stock market does next week. Just because it was spooked on Friday, doesn't mean it will be on Monday. There's a lot going on, but there's no need to panic right now." -- Tracey Ryniec
Have a Great Weekend,
Jim Giaquinto
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