NASDAQ stumbles again. So does the Dow. Bear market dead ahead?
WASHINGTON: Save for the Dow, many stocks opened higher Friday morning, boosting the broad-based S&P 500 and the tech-heavy NASDAQ averages. The Dow Jones Industrials have been sagging all morning, however, given a general lack of enthusiasm on the part of traders and investors recently. Unfortunately, as of the noon-hour Friday, the tech stocks that dominate the NASDAQ have joined the Dow in yet another spring decline.
There are signs everywhere that trading volume in most stocks continues to lag as investors withdraw from stocks and stock funds. Interest rate fears are causing investors to hold back, given that higher interest rates – which we’ve regularly seen this year – compete with stock yields. That drives many conservative investors towards corporate and U.S. bonds.
More worrisome, however, is the mindless relentlessness of the selling in many issues. Our oversized holdings of international drug giant Allergan (symbol: AGN) mark a clear case in point. Every time these shares catch a break and begin a two- or three-day rebound, savage selling re-materializes. That inevitably drives AGN shares back down to where they started their last rally. Or even below.
Worse, every little bit of adverse news pounds AGN stock hard again, generally leading to successive down-legs that are twice as intense as the occasional rallies.
So, we ask, when are the damned sellers going to be done? This nonsense has been going on since the company got creamed by U.S. courts last August-September. That’s when Allergan spectacularly lost its bid to delay introduction of generic/biosimilar versions of its best-selling prescription eyedrops, branded Restasis. Competition in this area was apparently going to wipe Allergan off the map, at least if you took the trading action to heart.
Ever since, every single rally in the stock has been met with another wave of selling. Lately, these selling fits have been less than dramatic. They occur on lower and lower volume. This indicates that, while the big selling was done a couple of months ago, even those holders remaining are tending to take advantage of even the tiniest rallies in the stock to dump what they have left.
AGN’s price-earnings (PE) ratio is now lower than the historically low PEs that frequently characterize conservative financial stocks like banks, insurance companies and utilities. It’s yet another example of the herd mentality, however. Current fake consensus seems to predict that a YUGE Trump Bear Market is imminent. So on any rally, sell, sell, sell!
In this way, Allergan has become an extreme example of current market sentiment across the boards. Bullish to an absurd degree in January, markets now seem to fear another Great Recession is on the way, or maybe even a Great Depression. Probably on Monday. It’s idiotic, but there it is.
So big stocks once again couldn’t catch a break today, despite ongoing earnings reports that in most cases are exceeding expectations. Even beleaguered techs rallied hard this morning on the NASDAQ, particularly stocks like Amazon (AMZN) and, believe it or not, Facebook (FB). Facebook was recently given up for dead and sold hard last week after Mark Zuckerberg’s rocky appearance before Congress.
But both AMZN and FB blew the doors off earnings estimates this week with their fire-hot quarterly numbers. And both stocks – particularly the recently battered shares of Facebook – took off on a tear, dragging the beaten up tech sector along with them. Until they didn’t.
According to an earlier report from CNBC, the tech-heavy NASDAQ
“… fell 0.2 percent as Apple, Netflix and Alphabet all dropped more than 1 percent. Earlier, it rose more than 1 percent on the back of strong earnings from Amazon. Tech shares initially rose broadly before falling nearly 1 percent as a sector.…
“‘It seems like we’ve reached a peak in momentum,’ said Daniel Deming, managing director at KKM Financial. ‘We cleared Wednesday and Thursday with strong earnings but people are still asking: Now what?'”
“Deming added: ‘When you step back, the market realizes it has to deal with issues it hasn’t had to contend with in a decade, mainly rising rates and deficit spending.’”
We’ll buy that. Yet despite the negatives, CNBC also noted the positives.
“In economic news, the U.S. economy grew by 2.3 percent in the first quarter, the Commerce Department said. Economists polled by Reuters expected a gain of 2 percent.
“‘This coupled with one of the best earnings seasons in years should please bulls looking for an economic win,’ said Mike Loewengart, VP of investment strategy at E-Trade.”
Also on the plus side of the news was mildly positive movement in East Asian politics. Reports continued to come in noting the positive North/South Korea summit just concluded. That meeting, between South Korea’s president and Little Rocket Man, if short on inked agreements, had optics as good as we’ve seen in this area for over 30 years.
Yet none of this is enough to reverse the current U.S. stock market correction. For that reason, we risk going in to “sell-in-May” season with negative momentum. Which, in turn, could mean that this correction might morph into a genuine bear market by late spring without anyone really noticing. Until it’s too late. The faltering NASDAQ might just be our most important tell
As noted in several earlier columns, we’re mostly keeping our investing powder dry right now in hope of future bargains. We’re only starting or growing positions in stable yield stocks right now like term-preferred stocks and floating rate preferreds. All preferred stocks will be adversely affected by the Fed’s relentless (and currently overdone) interest rate increase regimen.
But, either with time-limits on the life of the shares (term-preferreds) or the ability to float their effective interest rates as the interest rate environment dictates, term-preferred and floating rate preferred stock prices will remain generally more stable than those of other equities-based equity investments.
Sure, we missed the boat on the latest Amazon boost and the almost overnight recovery of Facebook shares. Then again, why take the chance?
Concluding thoughts on the NASDAQ and tech
As we saw with Facebook recently, tech stock prices remain stuck on an emotional roller-coaster. Holding them requires a strong stomach on the part of investors. Why get trapped on the wrong side of this trade?
Techs remain a potentially problematic time bomb in current portfolios. Our personal main worry: If U.S.-China trade relations hit a nasty air pocket, the Chinese could quickly retaliate against our massive tech industry. Lest we forget, much of our tech product inventory is “Made in China.” That’s a big worry. Owners of big tech positions are apparently taking it seriously by steadily withdrawing from this sector, positive news on AMZN and FB notwithstanding.
As we conclude this piece, the NASDAQ is once again attempting to rise from the dead. But we’ll believe in tech again when it can continue to rise for several trading days in a row. So far we’re still waiting. And sitting on most of our cash.
Keep your cash, too, for now. Don’t worry. Be happy. And have a great weekend. Spring is finally here for most of us, so let’s make the most of it. Let’s shelve our ongoing battle with our sour-puss fair-weather friend Mr. Market until Monday morning’s opening bell on Wall Street.