Raymond James Thoughts on the Market

Tech Titans Teeter


Equity markets fell on Monday with technology leading the way. Concerns over trade, faltering technology sales and fears over possible regulation of data combined to take the Dow down almost 400 points (1.56%), the S&P was off 45 points (1.66%) and the NASDAQ was off 219 points or 3%.


Michael Gibbs, Managing Director of Equity Portfolio & Technical Strategy, and Joey Madere, CFA, Senior Portfolio Strategist, Equity Portfolio & Technical Strategy


U.S. equities were lower on the day given the sharp sell- off in Technology. The NASDAQ declined 3.03% for the day following reports from WSJ that Apple (AAPL) cut production on all three new iPhone models, putting pressure on AAPL supply chain names and the overall Technology sector. While volume on the NASDAQ was roughly 8% below its 30-day average volume, declining volume as a percentage of total volume was over 80% at 82% for the day. Compared to prior large sell-offs in the NASDAQ QTD, today’s declining volume at only 82% was less significant than the 90% and 89% on October 10th and 24th, respectively. We will continue to keep an eye on the follow through on the NASDAQ following today’s sell-off.


Andrew Adams, CFA, CMT, Senior Research Associate, Equity Research


It was abad day but changes little in terms of the big picture. The NASDAQ remains above its late October intraday high, the S&P 500 remains above its low from just two sessions ago, and the market either needs to rally here very soon or else I will start to get more concerned if the October lows are violated. But today was just a continuation of the volatility we’ve experienced for two months and still could be part of the bottoming process. Risk must be managed on an individual position basis but that is always the case.


Nicholas Lacy, CFA, Chief Portfolio Strategist, Asset Management Services


Equity markets extended losses from last week into Monday. While no new information has hit the market, the selling pressure seems to be in the higher-growth oriented names that fall within the technology and consumer discretionary


sectors. Much of the earnings news continues to be positive with the U.S. leading the world as it prepares to finish 2018 with earnings growth of 25% or more year over year. Investors may be questioning why the markets are acting this way when earnings are coming in so strong. The issue may stem from the notion that the U.S. economy and U.S. earnings may be at peak growth right now. I don’t mean peak earnings as it looks likely that we could see high single digit or low double digit earnings growth in 2019. However, the 10% or so earning growth next year is far less than the 25% or so we might see this year. Forward guidance from firms has not been bad but some big names have been indicating next year may not be as good as year this year from a growth perspective. The markets are looking for reasons why next year or 2020 might be better than this year.


Markets are also looking at economic growth. The U.S. economy is helping drive the world as most countries are decelerating compared to the U.S. While 2019 might be a good year for U.S. GDP growth, it is unlikely to be as good as 2018 because it is unlikely that we get another fiscal tax cut. We may see 2.25-2.5% growth next year but it is still less than the 2.9-3.0% we are likely to see this year.


The market wants to know the delta or the change. The market wants to see that things are getting better. It is hard for the U.S. to be better from a growth perspective relative to this year. To make matters a little worse, it is the FAANGs (down 22% from peak) that are seeing the downside volatility with Netflix and Amazon and other high growth companies leading the way down. These are some of the companies that have lead the market over the last few years and have pushed their forward multiples very high. The question one should be asking is whether or not it is time to switch out of these high growth cyclical stocks in to some more defensive stocks. Only the future will tell us that but it is always a good idea to be diversified.

All expressions of opinion by the Investment Strategy Committee reflect the judgment of Raymond James & Associates, Inc. and are subject to change. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. No investment strategy can guarantee success. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital. The Standard & Poor’s 500 Index (S&P 500) is an index of 505 stocks issued by 500 large companies with market capitalizations of at least $6.1 billion. It is not possible to invest directly in an index. Technical Analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Further information regarding these investments is available from your financial advisor. Material is provided for informational purposes only and does not constitute a recommendation.  Diversification do not guarantee a profit nor protect against a loss.  The NASDAQ Composite Index is an unmanaged index of all stocks traded on the NASDAQ over-the-counter market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.