After a turbulent October, investors were hoping for relief from the sharp trade sell-off as the slow holiday season approaches. There was some initial relief at the beginning of November as markets rebounded, but that turned out to be a dead cat bounce when markets started selling off again as crude oil prices started plunging. All three major indexes’ — S&P 500, NASDAQ 100 and Dow 30 — year-to-date return turned red for the fourth time this year.
From a sector perspective, the information sector led the sell-off, mostly driven by Apple Inc., as investors process the new quarterly disclosure policy that mandates they discontinue announcing the unit sale of individual product categories.
The market viewed this as a big red flag, which raised concern over future iPhone sales — Apple’s primary cash cow. This fear spilled over into related companies such as Qualcomm and Skyworks because of their dependency on iPhone sales from the chips and semiconductors they make for the phones.
Energy was the second worst-performing sector as oil prices continue to plunge. Within the last seven weeks, U.S. West Texas Intermediate benchmark prices have dropped from highs around $76 in early October to $52 as of Nov. 27. As is the case of any commodity, the drop was due to rising inventory levels.
The weekly inventory level has been trending upward since September and is edging closer to the upper end of a five-year range. This five-year range is an important barometer for gauging the health of the crude oil market because it gives insight into the demand and supply balance in a historical context.
Any deviation from the average will either drive up the price or pull it down. If the current trend is continued and breaks above the upper end of the five-year range, a repeat of 2015 and 2016’s sub $30 oil prices is possible.
On the other end, health care and utilities were two of the bestperforming sectors as investors moved into defensive sectors. Health care outperformance has been especially interesting because most of the heavy lifting in the sector was done by major drug companies. Out of the top-five best performers, four were drug companies, despite the current negative political climate around drug pricing.