Icarus Flies, but FAANGs Fall from the Gaping Maw of US Stock Market – And My Blog is Still Here

Friday, August 3, 2018
By Paul Martin

By David Haggith
August 2, 2018

As we pass from early summer into late summer today, stocks on all the major indices open the day on the slide. The “Tech Wreck,” as it is being called, has been noted by many, as I’ll detail here. That is in spite of the fact that the last of the great FAANGS just reported its most stellar quarter ever. (See below.)

Morgan Stanley comes to me

In a statement that agrees with me on the January-February stock market plunge being the first leg of a downward journey that is taking its second leg down now, Morgan Stanley rings the warning bell, saying you need to “prepare for the biggest stock market sell-off in months.”

“The U.S. stock market has been partying all throughout July, and a hangover is coming…. Wall Street’s rally is showing signs of “exhaustion,” and … with major positive catalysts for trading now in the rearview mirror, there’s little that could continue to propel equities higher…. The bottom line for us is that we think the selling has just begun and this correction will be biggest since the one we experienced in February,” the investment bank wrote to clients…. A correction is technically defined as a decline of at least 10% from a recent peak. Both the Dow Jones Industrial Average … and the S&P 500 … corrected in early February…. The Dow remains in correction territory…. The firm forecast “a rolling bear market,” during which “every sector in the S&P 500 has gone through a significant derating” with the exception of tech and consumer discretionary…. That these two industry groups haven’t fallen much doesn’t mean they won’t, Morgan Stanley warned. “While it is possible tech and consumer discretionary stocks won’t experience the derating witnessed in other cyclical sectors, we think it is unlikely and are only emboldened by the misses from Facebook and Netflix and the price action last week.” (MarketWatch)

In early July, Morgan Stanley placed a call to sell tech stocks. That proved prescient as those stocks underperformed the rest of the market later in the month while the rest of the market underperformed itself.

“Our call … did suggest there was a lot more risk in Tech and growth stocks generally than what was perceived. Therefore, even good earnings could lead to disappointing price action while any miss would be severely punished. From our vantage point, the [subsequent] weaker earnings beat from several Tech leaders and outright misses from Netflix and Facebook were simply additional support for our call. (Zero Hedge)

“Our call was that these groups are likely to get hit next and, indeed, we think a meaningful correction in these asset categories began late last month. The bad news is that these sectors make up almost 40% of the S&P 500 and close to half of the Nasdaq Composite Index, so the correction will leave a mark on the broader U.S. indexes if we’re right. (MarketWatch)

The Rest…HERE

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