A big fine for Alphabet and the stalled health-care bill helped drive stocks lower today.
Stocks tumbled today as technology and biotech stocks led the market lower.
The S&P 500 fell 0.8% to 2,419.38 today, while the Dow Jones Industrial Average declined 98.89 points, or 0.5%, to 21,310.66. The Nasdaq Composite dropped 1.6% to 6,146.62.
It’s no surprise that the Nasdaq took the brunt of the selling today. Just as tech and biotech strength helped push it up last week, those two sectors helped push it down today. The Technology Select Sector SPDR ETF (XLK) fell 1.6% to $55.08 after the European Union levied a massive fine againstAlphabet (GOOGL), while the iShares Nasdaq Biotechnology ETF (IBB) dropped 2.7% after the Senate delayed a the vote on its health-care bill.
Recent speeches by central bankers suggest the Fed put may be dead, says Evercore ISI’s Dennis DeBusschere:
In a speech about financial stability today Fed Vice Chair Stan Fischer said “… evidence suggests that periods of elevated risk appetite are frequently accompanied by a rise in leverage at financial intermediaries. This evidence implies that elevated asset valuation pressures today may be indicative of rising vulnerabilities tomorrow.” So, it appears some Fed officials are becoming concerned about the rise of assets prices. As a macro focused client noted, the Fed would like markets to settle down so that they can focus on inflation, but if markets rally too much they will have to hike more. Interestingly, despite Fischer outlining some concerns to financial stability risk in his speech, Yellen noted that she does not believe the next financial crisis will be in our lifetime.
To the extent that a Fed “put” has been underpinning risk assets, the views above – that elevated asset prices represent a risk to the economy in the future and that there will not be another crisis in our lifetimes – suggests a FOMC that is comfortable raising rates even if equity / bond prices move lower.
The folks at Bespoke Investment Group worry about the disconnect between how consumers feel about the present and the future:
Earlier today, we noted that while Consumer Confidence in terms of the Present Situation was at new cycle highs, Expectations actually saw a decline. Ever since the recession ended in 2009, the Present Situation Index of the Confidence report has been trending steadily higher, while the Expectations Index has, for the most part, been moving sideways…
Over the last few months, [the spread between current conditions and expectations] has surged to its highs of the cycle and levels not seen since February 2008. While the lack of optimism regarding the future may be taken as a sign that consumers have yet to become overly confident, the reality is that prior periods where consumers’ views of the present became increasingly disconnected from their views of the future, it was often just before the onset of a recession. As shown in the chart, every US recession (since 1967) except the second dip of the double-dip recession in the early 1980s came just as, or right after, the spread between the Present Situation and Expectations peaked.
The spread, which currently stands at 45.7 points, isn’t wide enough to signal an imminent recession just yet. “[The] time to really get concerned would be if this spread continues to widen to levels in the mid to high 50s,” bespoke says.