“Turn off the lights if you are the last to leave”

From Last Wednesday’s note:

… keep an eye on the January 20th close… My sense is that we should see some support, barring a complete collapse in crude pricing.

Crude has not collapsed (closed at $30.89 Friday) in the ensuing three trading sessions and the S&P 500 has managed to remain above the January 20th close of 1859, just barely. That said, it would be difficult to characterize Friday’s trade as anything less than a major disappointment, a particularly gruesome day for the NASDAQ (-3.25%) and a drubbing for the consumer discretionary sector (-4.48%).

Q4 earnings results and guidance from recent technology leaders triggered a massive move to the exits on Friday and in the process fueled a broader market rout. The most dramatic case in point was the earnings release from LinkedIn (LNKD) which provided better than expected Q4 results, but cautious guidance. The net result was a whopping 44% move lower on the day. GoPro (GPRO) reported disappointing results and guidance dragging one of last year’s high fliers dramatically lower last week as well. Lion’s Gate (LGF) missed and guided lower. Software darling Tableau (DATA) (-45.0%) got smoked after cutting forecasts. Apple (AAPL) moved lower again losing 2.67% on the day closing at $ 94.02 on massive volume (46M shares). It is a sign of the times that Apple has traded from a closing high of $132.54 on May 20 of 2015 to Friday’s close registering a loss of 30.1% in the process. The weak guidance and occasional miss on earnings that has defined many of the stocks in both technology and consumer discretionary sectors has fueled a “Turn off the lights if you are the last to leave” mentality. That shift in investor outlook has punished stocks across the board that have been trading at relatively lofty valuations.

Away from the NASDAQ, the S&P 500 (-1.85%) and Dow Industrials (-1.29%) both also lost ground on the day, but without the dramatically negative internals and breadth posted by the NASDAQ. In fact, the Financials (- 0.99%) held up relatively well on Friday given all the misdirection and confusion over rates and the economy.

Very importantly:

We have apparently once again reverted to a dysfunctional equity market narrative where good news is bad news and where bad news is thought to be good news. Why? Investors have become conditioned to a highly accommodative Fed over the past eight years. If we continue to see expansion in our economy coupled with solid jobs gains, investors are fearful that the Fed will follow through with its projections to raise rates as many as four times this year.

The odds of a move in rates at this upcoming March meeting are low – as we have touched on recently – but given the drop in the official unemployment rate on Friday from 5.0% to 4.9%, and despite the weaker than expected gain in monthly payrolls, investors are hedging their bets. It is precisely this interest rate narrative, coupled with uneven guidance and earnings results that has investors once again on edge with leaders taking the brunt of the selling.

Other than the headline grabbing news that was released as per the employment report, the Baker-Hughes North American Rig Count dropped to 813 from the previous week’s 850 and International Trade figures were in line at $-43.4 B.

Today’s Economic Calendar has only one release on tap – the Labor Market Conditions Index.

Buckle up.

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flickr photo: Dan Harrelson