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The Markets This Week

October 15, 2014 | Weekly Commentary

Stock prices were whipsawed in a wild week of trading, ultimately falling over 3% on worsening worries about slowing global economic growth. By Friday’s close, the market was down 5% from highs, halfway to a correction.

As bad as that was, many industries particularly exposed to such fears received an even bigger beat-down. As crude-oil prices fell into bear-market territory on Wednesday, down over 20% from highs, oil and gas shares shed 8% last week. Semiconductors lost 9%, most of that after bellwether Microchip Technology (ticker: MCHP) lowered quarterly sales guidance, led by a revenue miss in China. Auto makers fell 8%, as Ford Motor (F) said that September sales in China declined 4%. Airline stocks were whacked 10% on growing Ebola fears, and agricultural-products firms lost 9% on continuing drops in commodity prices.

That news fed the global growth anxiety, says Stephen Massocca, a portfolio manager at Wedbush Equity Management. “I felt like I went 13 rounds with Mike Tyson every day last week.”

Perhaps that’s an exaggeration, but in recent weeks plenty of money managers have complained of the pain to this columnist. Just one in five active fund managers is outperforming year to date, according to an Oct. 9 report from Bank of America Merrill Lynch.

The simplest measure of volatility was that Wednesday was the best day of the year for the Dow Jones Industrial Average, up 275 points, and was promptly followed by the worst day, down 335 on Thursday. The last time the index had a back-to-back largest point gain and drop of the year was in 1997—in October, of course.

Last week, the Dow surrendered 466 points or 2.7%, to 16,554.10, and the Standard & Poor’s 500 index lost 62 or 3.1%, to 1906.13. The Nasdaq Composite index lost nearly 200 or 4.5%, to 4276.24. The Russell 2000 fell 4.7%, to 1053.32.

How bad the volatility seems depends on your time frame, says Thomas Villalta, director of investment research at Covenant Multifamily Offices. “It’s more than people have been used to lately” but still low compared to gyrations in 2011. “There’s no sense of panic,” he says.

Friday’s decline didn’t show the “buy on dips” mentality that has supported the market previously, adds Tim Ghriskey, chief investment officer of Solaris Asset Management. As third-quarter earnings begin to come out, investor focus should move to profits from global issues, he says.

Friday’s late-day weakness doesn’t bode well for the market this week.

(Source: Barrons Online)

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