Weekly Review 2.4-6-4.2018.

Last week, there was dramatic activity, markets maintaining their volatility. Stocks traded up over 2% on the week, the S&P 500 seeing movement of over 1.5% on 3 of 4 days in the shortened trading week. The swings in stocks reflected shifting sentiment, pessimism replaced by optimism and vice versa.

The tech sector had a rough time in March, trading off 4% on the month. For the S&P 500 tech sector, it was all-in-all, the worst month since April ’16.

What were the negative factors weighing on the sector?

For one, it was persistent concern – initially fueled by Facebook – about the misuse of user data. But fears about the potential for misused data extend beyond that. With firms becoming too large to fail, the likes of banks during the last financial crisis, the market is facing fundamental questions pitting ethical values against unbound capitalism. Facebook has 2 billion users meaning that approximately some one in four people in the world use it as a primary source of news, networking – and obviously, social media. And with America clearly taking the lead in such matters, with the fear being so great that hi-tech firms are dictating norms contrary to Americans’ desire for privacy and the sanctity of information, things could get very messy! Like an avalanche, or a snowball effect, any move the U.S. Congress makes to crimp Facebook’s unfettered business practices, could have a ripple effect on the entire sector – which means that you should not only expect volatility but keep your finger on the pulse of the market, because it could be that the golden era for many of the FAANG stocks will fade given these new external threats.

That, perhaps, could be said to be the new trend in the marketplace. Under Trump’s tenure, the pendulum had swung in favor of higher profits boosted by tax cuts, and reined in regulation. And now – of late, from tariffs to the fears of new regulations imposed on tech firms – the commonality is fear that the bottom line will be crimped, earnings slashed as the ease of doing business is complicated, the profitability matrix altered as companies experience the growing pains of eliminating newly unprofitable businesses in the favor of others. With these shocks to the market, and tech stocks taking such a lead, we have to see if we’re entering a new era, with dominancy in the market shifting to another sector.

At the same time, some of the things going for the market include the sheer strength of cloud computing, Microsoft making headlines just recently after Morgan Stanley announced that it could be the first to hit a valuation of $1 trillion. Additionally, we’ve been yet to see the fruit of repatriated funds, companies potentially bringing back to the U.S. hundreds of billions of dollars in moneys having officially been earned abroad. Will we see an uptick in dividends, acquisitions and open-market buybacks? It’s still, perhaps, too early to tell.

Now, what percentage of the S&P 500 does the tech sector represent? With the S&P 500’s 11 sectors, you might be surprised to learn that the cap of tech stocks comes to a disproportionate 25% of the market. That notwithstanding, we’ve seen healthy revenue and earnings growth, Apple perhaps being the example par excellence of consistent revenue growth coupled by a rise in market valuation. Only time will tell if tech stocks will be a headwind for the market; the same way Apple has a huge weight on the Dow, the S&P 500 and the NASDAQ, likewise, tech firms’ disproportionate and outstretched size creates room for concern.

Weekly Summary: The Dow ended the week up 2.4%, the S&P 500 adding on 2.0%. The NASDAQ underperformed, falling 1%. On the year, the Dow is down 2.5%, the S&P 500 trading off 1.2%. The tech-leaning NASDAQ up 2.3% on the year.

The steep fall in Amazon led the consumer discretionary sector to join tech and energy stocks as the week’s S&P 500 laggards. Consumer staples, real estate and utility shares did well; they all became more enticing because of their dividends giving the drop in long-term bond yields.

Have a great trading week!