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WSJ Your Money Briefing
A Stock Pullback, Despite Strong Earnings
00:08:33
Tech sales sneeze, the markets catch cold. The Wall Street Journal's Akane Otani says a market pullback was probably inevitable even though earnings and the economy have been strong. She adds that the selloff has some investors scratching their heads.
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- [00:01]
A
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- [00:36]
B
With your money briefing. I'm Charlie Turner in New York for the Wall Street Journal. If you're a stock investor, you're most likely glad the week is over and that October is almost over. Stocks tumbled Friday, resuming its slide after rebounding Thursday from a massive sell off the day before. On Friday, the Dow Jones Industrials fell 296points to 24,668. Tech stocks had another tough day, sending the Nasdaq Composite down 100 and the S&P 500 dropped 46. The Dow dropped 3% for the week, the Nasdaq fell 3.8% and the S&P 500 closed nearly 4% lower for the week. Who better to put the week in perspective than Wall Street Journal markets reporter Akane Ohtani, who's here in our studio. Akane, we got some disappointing sales numbers this week from Amazon and Google. Tech was weak. I get the feeling it's not just a handful of tech firms, but that something is fundamentally wrong with the numbers that businesses generally are putting up this earnings season.
- [01:36]
C
You would think so, right from the reaction that we've been seeing in the stock market. S and P and Dow are on course for their worst month since 2008. That was at a time when the economy was in a really, really bad way. Actually, the earnings numbers that overall we've been seeing have been pretty strong. Actually. S&P 500 firms are expected to post earnings growth of 20 for the third quarter, which is still a little bit slower than the first half of the year, but around the fastest pace since 2010 or so.
- [02:08]
B
What's going on then?
- [02:10]
C
Well, I think if you look at what's been happening throughout the month, you'll see this play out over and over again where we get good news, but it doesn't really seem to calm the stock market down. For instance, Friday we got GDP data and it showed growth expanding at the fastest pace since 2014. But again, stock futures continued to trend lower and we saw the stock market sell off.
- [02:37]
B
While we're on that, you mentioned the gdp. Were investors sort of spooked by the fact that business investment was weak?
- [02:43]
C
I think that is one thing that they definitely picked up on. Because as we're listening to all these earnings calls come in, one thing that investors are very much aware of is whether investment plans among businesses are going to start stalling or slowing down, in part because of uncertainty related to tariffs. And so the fact that we're seeing business investments starting to slow is definitely not a good sign. Although of course, consumer spending was shown to be quite strong in the GDP print. And that sort of, I think, helped offset some of those worries a little bit.
- [03:17]
B
Are worries about slowdowns in Europe and China also hurting US Stocks? I'm not exactly sure how this is working.
- [03:23]
C
Well, I think a lot of investors that you talk to would blame a couple of things for the stock market's performance this month. Global growth is definitely one of them. The IMF a couple weeks ago actually cut its forecast for 2018 and 2019, and they did cite uncertainty about tariffs as hurting the growth forecast for future years. And with the economy being so connected to not just what's happening domestically, but what's happening abroad and with corporate profits really depending on the health of sales abroad as well, what happens in China in particular does matter ultimately for US Stocks.
- [04:01]
B
Now, I said in the intro that on Friday, stocks resumed their slide after rebounding Thursday from a pretty massive sell off on Wednesday. I mean, the Nasdaq was down 4.4%.
- [04:12]
C
Wednesday was a brutal sell off for the market. We saw the S and P and the Dow both erase all of their gains for the year, which was kind of a big moment that we were all looking for. Like we actually set alerts on our computers for that moment because that's really sort of the point at which, you know that this sell off has really taken off.
- [04:32]
B
When Akane Ohtani sends an alert, you know something is up. Stocks looked like they were recovering at one point in Friday's session, but then slipped back. The Dow had been over 500 points. I took note of that and I sort of wondered what was happening.
- [04:45]
C
Yeah, that's a pattern that we've seen off and on throughout this month in particular. And I think it all goes back to the fact that we're really seeing a pickup in volatility where we're not just seeing swings throughout the month, but we're seeing swings throughout the day and swings throughout even like 20 minute segments of the trading day. So we've seen that a couple times this week where the dow is down 200 points and then 15 minutes later it's down 300 points and then it's back up, you know, it's down 100 points and you think maybe we're going to close flat in the day. But then it doesn't. And none of this really seems to make sense to traders that we talk to. Like, they're not seeing data that's, you know, sparking these moves or anything crossing the wires necessarily. They do say, you know, it's just a mystery because algorithms trading, of course, we're never going to be quite sure how much that has to do with the swings that we see on an intraday basis. And so that is definitely something that people have been watching.
- [05:42]
B
All right, here's a question that is kind of an obnoxious question, but I'll ask it anyway. Do investors give you any idea of what can arrest this slide or when it might happen?
- [05:52]
C
That's the question of the week or the month even. And sadly, no. I mean, I think investors, a lot of the folks that we speak to had this sort of sense that, you know, to a certain extent, a pullback was expected because we had seen such a spectacular run up in US Stocks during the late summer. And that was sort of buoyed by the economic data that we saw coming out. And we saw the US Sort of really expanding its lead over other stock indexes around the world. And so some people thought that was. That divergence was not going to be sustainable. And so here we are, October. We see U.S. stocks sort of catch up to the rest of the world. But at this point, I think folks are sort of scratching their heads and thinking, like, haven't we fallen enough at this point? I mean, we saw good GDP data, we have seen some weaker data on the housing and auto fronts, but earnings overall continue to impress. So, I mean, sadly, not a lot of clarity on that front. I think folks are just saying they're going to have to keep a close eye on the data that we see in the coming weeks.
- [06:52]
B
Like jobs.
- [06:54]
C
Yeah, and that will be a big one. As well as PCE and consumer spending on Monday. Any signs again that it all goes back to inflation? Any signs that inflation is. Inflation might be picking up could very well spook investors at this point, especially because people have been so sensitive to bond yields and the direction of the Fed in the last month. And when we have seen bond yields retreat a little bit as people have been sort of scared out of the stock market and going back to Treasuries. But bond yields do remain significantly higher than where they started the year. And so if we see any of these data points suggesting that inflationary pressures are picking up that could spark another sort of dual stock bond sell off.
- [07:35]
B
Wall Street Journal markets reporter Akane Ohtani, Thanks a lot.
- [07:38]
C
Thanks for having me.
- [07:45]
B
Jobs, Apple and Facebook will highlight a busy week for both economic and earnings reports. On Friday, the Labor Department issues its October employment data. We'll see if job growth picks up from the 134,000 jobs added in September. The unemployment rate dipped to 3.7%. Also in the new week, we'll get September reports on personal income and spending, the trade deficit, factory orders and construction spending. October data rolls in for manufacturing activity, vehicle sales and consumer confidence. There's also a government report on third quarter productivity. As mentioned, it's an earnings heavy week, highlighted by Apple's quarterly report on Thursday. Apple's also scheduled to unveil new iPads and Macs at an event in New York on Tuesday. That same day, Facebook reports financial results for its latest quarter. Watch out for earnings data from others, including Dow components, Coca Cola and Pfizer. We'll hear from General Electric, eBay, MasterCard, CBS, Starbucks, Kellogg, Allstate and the New York Times. Carmakers GM and Fiat Chrysler also report. And we'll get profit numbers from oil giants Chevron and ExxonMobil. Finally, Apple watchers will also keep an eye on earnings from some Apple suppliers, including Cirrus Logic and Qorvo. And that's your money briefing. I'm Charlie Turner in New York for the Wall Street Journal.
- [09:05]
A
Still running global payroll Like a relay race, deal replaces fragmented Payroll vendors with one global system. No third parties. Hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday, SAP, Netsuite operate like a local everywhere. Visit deel.com WSJ that's d e e l com WSJ.