European stocks mixed on Friday after volatile week; U.K. economic woes
Yesterday was one of the most volatile days in memory. Both the Dow and the NASDAQ fell 1,000 points from the high of the day to the low. After beginning the day surging on the strength of very good reports from NVIDIA and Walmart, the market reversed as there was more caution about a December rate cut by the Fed, as well as a collapse in the crypto market.
Given the spikes in the VIX and the put/call ratio, we appear to be hopefully going through the traditional technical bottoming process, especially in the face of no Black Swan-level of bad news. The economy is still growing, earnings are still strong, but suffering through a +5% correction, especially after such a long bull market, always makes investors second-guess their assumptions.
While YTD, the only sectors in the red are consumer staples, consumer discretionary, and real estate, for the trailing month, the only sectors in the green are healthcare and energy. This morning, we’re seeing tech continue to sell off, which is being characterized as a popping of the AI bubble. The Magnificent 7 is down 2.2% in a week, 3.1% in a month, though still up 16.1% YTD.
NVIDIA (NVDA) is the poster child of the AI correction, now down $20 from its high yesterday on the strong earnings and guidance. YTD, NVIDIA is still up 30.4%, and its correction has taken down the entire semiconductor sector, down 2% today, down 6.9% in a week, but also up 31.5% YTD. The outlier is Alphabet (GOOG), up today 1.6% and up 17.2% in a month (+55.3% YTD) as they have made several positive announcements and are now producing their own AI chips.
The damage in the crypto sector, always volatile, is now the worst since 2022. Bitcoin is down 14.3% in a week. 25.7% in a month, down 34.3% since its all-time high on October 6th. Often seen as an indication of risk sentiment, the huge correction is now forcing liquidation among several dealers and has caused a selloff of all the alternative coins.
The sell-off in stocks has finally pushed interest rates lower, despite the Fed-speak that has previously led to the conclusion that a December cut is unlikely. Indeed, today the bet on a December cut jumped to 69% and a 2nd cut in January to 28%. The political pressure on the Fed is clearly heating up. Today, the US 2-year is down 5bps to 3.51%, the lowest in November. The 10-year is down 4bps to 4.06%, also the lowest in November. The US dollar index got as high as 100.3 today, the highest since May.
Economic news from the government is still delayed, but today we got S&P Global data that reflects continued growth, and Michigan consumer surveys that showed higher sentiment and lower inflation expectations.
On the commodity front, gold is modestly higher, silver down 2%, and copper is not far below $5. Crude oil is down 2.4% to $57.5/bbl, at the lows for the year, while natural gas is up 2.7% to $4.6/mcf, a 3-year high.
After yesterday, it’s hard to call a bottom to the correction, but if the better bets on a December Fed cut come through, we will likely have a material rebound in December.