What Lies Beneath? The Stock Market May Be Rotting

The S&P has gained 6.7 percent over the past 52 weeks, the Nasdaq has logged a 12.7 percent rise over the same period and the Dow has risen 7.5 percent. On the surface, the stock market may look like all is well, but many experts are pointing to some telltale signs that there is some substantial rotting away going on if you look beneath the surface of the current financial landscape. These signs include the fact that 353 stocks on the S&P 500 are down 10 percent from 52-week highs and 179 have lost at least 20 percent. Wolf Richter, of Wolf Street blog, has warned investors not to be fooled by the “hunky-dory” surface of this market as the rot is setting in The Bloomberg global equity index lost $637 billion in market cap on Tuesday and that gap could get bigger, with more volatility on Wall Street lurking on Wednesday. Overall, stocks would be sunk by a more substantial amount if not for heavyweight tech performers like Apple and Microsoft, whose 52-week losses are only in the single digits. The tech giants’ performances in the market have helped to soften the blow of other big tech losses, like the 21 percent drop for shares of Netflix over the same period. These FAANG stocks – Facebook, Apple, Amazon, Netflix and Alphabet/Google- could have a significant impact on the market. As Netflix has already dropped, and Facebook falling a staggering 30.3 percent in the past three months, Alphabet slumping 13.2 percent and Amazon stock dropping 5.7 percent all over the same period, if any of these four names report more disastrous earnings it could easily cause greater market stress, as these tech giants struggle heading toward the end of the year. Pairing these tech losses with the smaller-capitalization stocks, down 12 percent since the end of August, has many noticing the crumbling of the market. Even as major indexes rose over the 52-week period, 496 individual stocks of those on the New York Stock Exchange dropped to new 52-week lows this week, while only 8 reached 52-week highs. This means nearly a quarter of active stocks traded on the NYSE hit new 52-week lows this week. “These are the hallmarks of a market that is rotting ‘gradually,’ as the Fed would say, at every corner underneath the covers – the covers being a few large stocks, such as Apple, that have held up reasonably well. But they can no longer cover the rotting process,” says Richter. Damage assessments from the recent market slump keep rolling in, and stock losses are more gruesome and bigger than they appear on the surface. Big trouble for the struggling bull market lurks in the deeper pool of companies that make up the S&P 500 stock index. Shares of 165 companies, or one-third of the index, are in full retreat and now in a bear market territory- meaning their stock prices are down more than 20 percent from their recent highs. Risks seem to be piling and investor confidence inevitably will crack and take this market down significantly, with headwinds such as looming Fed hikes, a housing market that is rolling over, trade–war worries festering, midterm elections and a feeling that the strong earnings and the healthy economy can only get worse, not better. On the global market, investors have been unnerved by a myriad of issues including some disappointing earnings reports, uncertainty over Brexit, Italy’s budget spat with the European Commission, and pressure on Saudi Arabia over the killing of prominent journalist Jamal Khashoggi. As of Wednesday, The Dow industrials had taken another tumble of more than 600 points. It has gained some ground back on Thursday, however, to quell some investors’ nerves. Speaking of the housing market, sales of new single-family homes in September plunged 18 percent from September a year ago, not seasonally adjusted. In terms of rate of sales, homes sold dropped 13 percent in the same amount of time. Pair this data with the surging number of new unsold single-family houses on the market of 16 percent, the highest number since January 2009 during the middle of the housing bust, and the trends and numbers seem to be hard to ignore. Should the housing market continue to struggle, and investors’ concerns over domestic and international volatility continue, the stink of this market “rot” will become more and more evident. In the meantime, Palladium has spiked to an all-time high, surpassing its previous high mark made earlier this year in January. Over the past 30 days, Gold has improved 2.83 percent as well, giving investors some safe harbor from a volatile market. As worries and concerns continue to grow, look for these precious metals to become more attractive.