December 7, 2018

Shares in Asia were mostly higher on Friday on the back of a report suggesting the U.S. Federal reserve could consider a slower tempo of increasing interest rates than had been previously expected. Even European markets closed modestly higher to cap a wild week. However, this would not be the case for North American markets; today the S&P 500 pulled back 2.3%, the Russell 2000 dropped 2.75%, and the Nasdaq slumped over 3%. The November employment data didn’t raise any serious doubts about the prospects for a rate hike on the 19th, but was consistent with growing market expectations of a less hawkish Fed in 2019. Stock and bond futures initially lifted on the news. OPEC and non-OPEC producers pushed forward with an agreement to cut production by 1.2M bpd without any assurances Iran would cap its production. WTI crude rose 5% on the news, while the energy complex is a notable bright spot in today’s equity trading. About an hour into the trading session, U.S. stocks rolled over, led by the tech-heavy NASDAQ which spearheaded the rebound in U.S. indices yesterday. Financials stayed relatively heavy despite marginal widening in the U.S. 2-10 Treasury yield spread, while homebuilders lifted for the second straight session with rates looking to finish the week at the lowest levels in months. 

Tech was the worst performing sector today with growth and popular longs again leading everything lower again depicting a de-risking environment. Semis remained under pressure (SOX -1.7%) on continued fears of a trade war and despite better results from AVGO (+1.4%) last night after the close. FB was outperforming the rest of FANG likely because of the overly negative sentiment already in the name as well as valuation support (trading at 16.3x EPS). Growth software was weaker with popular longs such as CRM, NOW, MSFT, DATA all underperforming. ADBE was lagging other favored longs (-4%) likely because they have yet to report yet (report next week 12/13). Hardware was also underperforming with HPE -7.4% giving back more than its earnings driven gains yesterday.