Anyone having a tough time remembering how the stock market behaved on Monday needn't fear. It should come back to them at today's open, which is setting up to be a negative one on account of follow-through selling in the FAANG stocks, other growth/momentum stocks, weakness in the retail space, and relatively weak housing market data.
Currently, the S&P futures are down 41 points and are trading 1.4% below fair value. The Nasdaq 100 futures are down 154 points and are trading 2.0% below fair value. The Dow Jones Industrial Average futures are down 375 points and are trading 1.4% below fair value.
There was a steady degradation in the futures market that started around 2:00 a.m. ET, which coincided with weak showings from Asian markets, although selling interest has picked up more recently as earnings reports from several retailers have had a disappointing hue.
Target (TGT), Kohl's (KSS), Lowe's (LOW), and L Brands (LB) are all down between 8.0% and 12.0% for a range of reasons that include concerns about gross margin pressures, elevated inventory levels, weaker than expected comparable store sales, and difficult comparisons in 2019.
Those reasons don't apply in all cases, yet one reason is enough in this market, which is caught up in growth concerns that have led to a de-risking effort.
The FAANG stocks and information technology sector were at the epicenter of Monday's de-risking move, falling victim to liquidation efforts that were liked to an unwinding of crowded trades that flowed from worries about a cyclical slowdown, valuations, and increased regulatory scrutiny.
Facebook (FB), Apple (AAPL), Amazon.com (AMZN), Netflix (NFLX), and Alphabet (GOOG) are all in a bear market and are all indicated at least 2.0% lower in pre-market trading.
Just like Monday, the weight of those losses is expected to pressure the broader market, not just from a market-cap standpoint but also from a sentiment standpoint.
These stocks are widely owned and they have "always worked," which means they have left a lot of owners taken aback by their technical breakdown and the lack of any buy-the-dip assertiveness that has sustained them time and again in this bull market.
In a certain respect, this market is waiting for them to show up again to instill some confidence in the idea that the broader-market sell-off has run its course.
The weakness in those former leadership names (well, they are still leadership stocks, only now they are leading to the downside) is one knock on this market.
Another knock is that the seasonal trading cheer typically seen this time of year has tilted to the moody side so far. Granted there are still some decent winners this month (the real estate sector is up 4.4%), yet the weight of losses in the information technology (-5.5%), communication services (-4.5%), and consumer discretionary (-2.0%) sectors has the S&P 500 down 0.8% in November.
That's not a knock-knock joke, but it begs the question everyone is waiting to see answered: who's there?
Who will be there to save the seasonal day? Will it be the FAANG stocks? Will it be the bloodied semiconductor stocks? Will it be President Trump and President Xi at the G20 Summit? Will it be the Fed?
Answers all unknown at this point, which is why the price action remains key.
Shifting gears, housing starts increased 1.5% month-over-month in October to a seasonally adjusted annual rate of 1.228 million units (Briefing.com consensus 1.230 million). Building permits slipped 0.6% to a seasonally adjusted annual rate of 1.263 million (Briefing.com consensus 1.260 million) from an upwardly revised 1.270 million (from 1.241 million) in September.
The key takeaway from the report, however, is that there wasn't any strength in single-unit permits or starts, which were down 0.6% and 1.8%, respectively, month-over-month and down 0.6% and 2.6%, respectively, year-over-year.
Single-unit starts were down across all regions, with the exception of the Northeast (+14.8%), which also happens to be the smallest region for housing starts.
The Housing Starts and Building Permits report might have passed the consensus estimate headline test, yet it isn't a report that should be seen as assuaging concerns about the softness in housing market activity. If anything, it plays right into those concerns with the year-over-year declines for total permits (-6.0%) and total starts (-2.9%).