One really shouldn’t be shocked by Monday’s bruising market sell-off, provided they are actually studying the markets instead of day-trading headlines.
The Dow Jones Industrial Average plunged by more than 600 points on Monday, following a 200-point plus drubbing on Friday. A good deal of selling pressure was also seen on the Nasdaq Composite and S&P 500. Stoking the rout were fresh fears on demand for Dow component Apple’s products, a rising U.S. dollar and worries about a speech on the economy Wednesday from Federal Reserve Chairman Jerome Powell.
Some of the session’s biggest laggards were former high-flying chip stocks such as Advanced Micro Devices, Micron, Nvidia, Applied Materials and Broadcom.
Although no longer a Dow member, General Electric’s 7% shellacking on comments by new CEO Larry Culp did nothing to spur buyers to step into the fold.
“Spreads [S&P 500 earnings yield vs. current levels of interest rates] still favor stocks but the market is looking for more direction on the future of corporate profit growth before making its next move. This is a time to be increasingly selective and focus on companies that are growing market share and increasing unit sales,” cautions veteran C.J. Lawrence portfolio strategist Terry Gardner, Jr.
Beyond Monday’s ugly move in the markets, signs have been mounting that investors are gearing up for a dose of bad news in early 2019. Pick your poison as to why, ranging from tariffs on Chinese goods scheduled to hit 25% on January 1 (from 10% currently) to a Fed meeting in late January where rates are likely to be hiked again.
Here are several bearish indicators in the market for the average investor to ponder.
Tech stocks underperforming utility stocks
With interest rate fears on the rise, investors have flocked to a perceived safe-haven sector such as utilities. The Utilities Select Sector SPDR ETF is up about 4.5% during the past month versus a 3.5% drop for the Nasdaq.
Utilities are now outperforming tech stocks for the year, points out Chris Zaccarelli, chief investment officer of Independent Advisor Alliance.
Food stocks in favor
Along the lines of investors ditching growth stocks for safe havens, consumer packaged goods stocks continue to catch bids. Names like Conagra, Kraft Heinz, Mondelez and Proctor & Gamble — known for above market dividend yields — were some of Monday’s top performers.
P&G is up 18% in the last month alone. While not exactly a consumer packaged goods company, fast-food chain McDonald’s has watched its stock pop 13% in the past month on the flight to safety.
Financial stocks underperforming
Even with the allure of higher interest rates in 2019 — which on paper should be a positive for the banks as they can earn more on loans — the financials continue to underperform. For instance, Goldman Sachs shares have declined 8.5% in the past three months versus a 3.2% gain on the Dow. Goldman’s stock was among the worst Dow performers during Monday’s rout.
Bank of America, Morgan Stanley and JPMorgan have also lagged the Dow in the past three months.
The market’s message is clear: a slowing U.S. economy in 2019 is more of a risk to financial stocks than rising rates are a benefit.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi