US stock markets once again saw heavy falls overnight, seeing gains for the year wiped out after poor results from retailers and fears over slowing smartphone sales.
The S&P 500 closed last night at 2,642, down 3.5% for this week alone and 55 points below the level it opened the year. It’s now down almost 10% since it hit a record high in late September.
It’s a similar story for the NASDAQ, which, at 6,909, is 99 points below its year-start level and has declined 4.7% week-to-date; and the Dow Jones Industrial Average, which is 360 points down year-to-date and 3.75% lower this week.
Meanwhile, oil prices continued their downward trend. Brent and WTI were down another 5% and 4% respectively, taking their respective losses since both hit four-year highs in October to 26% and 29%.
One of the biggest losers in the recent market rout, Apple (AAPL), had been a perennial winner until recently. Having become the first company to reach a market cap of $1 trillion back in September, it has seen around $250 billion knocked off since. From peak to trough, it’s down 24%.
That is a hugely significant figure, according to Anthony Gillham, head of investments at Quilter Investors. “It provides a stark reminder of the importance of taking measured risks and the dangers investors face if they’re over-exposed to a growth stock when the momentum fades.”
Concerns over slowing smartphone sales have resurfaced, while a number of Apple’s suppliers have seen profit warnings recently. Worries over semiconductor stocks such as Nvidia (NVDA) haven't helped, either.
“A combination of factors are fuelling concerns that current valuations may be over-zealous,” adds Gillham.
“In Apple’s case this includes the decision to discontinue reporting handset sales and the aforementioned profit warnings from chipmakers, but also wider economic factors including possible cooling in the US economy.”
US Retailers Struggle
But it was retailers that led losses yesterday, shedding around $50 billion in market value thanks to weak results. Target (TGT) was down 11%, Kohl’s (KSS) 9%, Lowe’s (LOW) 5.5% and L Brands (LB) a huge 18% after slashing its dividend.
Most of the S&P 500’s retailing sub-sectors are down around 20% in the quarter to 20 November; the SPDR S&P Retail ETF (XRT) lost 3.3% overnight.
A tech slowdown, a deceleration in growth, oil, US housing market weakness and credit stress are all worries, admits Jason Draho, head of asset allocation at UBS Global Wealth Management. But he still doesn’t see an end to the US and global economic expansion in sight.
Revenue growth continues to be strong, while consumer spending over the holiday season is expected to be one of the best periods in recent years. Meanwhile, the oil sell-off occurred without any new fundamental news, while demand for moderately priced homes remains reasonably solid.
“We view the sell-off as overdone and a bull market correction, with valuations that have become more compelling,” Draho continues.
