Stocks Mixed in Busy Week, Tech Tanks Today
In a busy week for political headlines, stocks finished only moderately changed. The James Comey testimony produced little concerning revelations and markets shrugged off Theresa May losing a majority in British Parliamentary elections. For the week, the Dow gained 0.3% while the S&P 500 declined 0.3%.
Politics – It’s often said that stock climb a wall of worry. That mantra seems to be holding this year. While there’s a lot of political turmoil, investors have largely shrugged off any concern. This suggests investors view the situations as political and not economic in nature. This week, everyone was watching the Comey testimony and the British Parliamentary Elections. While all sides have commented on whether the Comey testimony helped or hurt Trump, from my view, nothing new was stated that changed the current perception of the investigation. Comey said there was no evidence any Trump officials colluded with Russia, would not say that Trump obstructed justice and said Trump wasn’t under investigation. Impeachment still seems highly unlikely to me, but politically these distractions slow the implementation of some of the Trump’s economic activity. Read More
In Britain, Prime Minister Theresa May says she will not resign following the disappointing election for her Conservative Party. This was viewed as an important election as the country begins Brexit negotiations on the 19th. May said she will create a governing majority by working with a small pro-Brexit party that won 10 seats. Coupled with the Conservative Party’s 318 seats, that gives May a slim majority in the 650-seat body. The market seems ho-hum on the issue. I think most people now believe that whether Brexit happens or not, European and UK trade will continue at comparable levels to the current situation, so it’s not the large economic issue some feared after the Brexit vote. Read More
Tech’s Friday Sell-off – The tech sector sold off sharply today with names such as a Apple, Google, Amazon, Netflix and others declining more than 3%. The sector had been a top performer this year, but this sharp move today is forcing investors to ask whether this is a short-term blip or the beginning of a trend. I think there could be some more weakness, but overall, I still believe tech, and some of the larger cap names mentioned above, are well-positioned for future stock growth. There are outliers on valuation, but overall valuation is well below the 2000 tech bubble. These companies generate significant cash flow and remain some of the few companies with significant revenue growth potential. Over the last six years or so we’ve seen numerous market, or sector, declines that lasted a few days or weeks, but the fundamentals remained in place and stocks quickly recovered. This seems the most likely outcome to me.
Oil moved lower again this week, decreasing 3.9% to close at $45.90/barrel. The yield on the 10-yr Treasury moved higher, closing at 2.20% from 2.15% a week ago. The average rate on a 30-yr fixed rate moved lower this week, to 3.89% from 3.94% last week.