Market Lab Report - Premarket Pulse 2/8/16
Major averages tumbled on mixed volume with former leading "FANG" type technology stocks FB, AMZN, NFLX and GOOGL giving up significant ground as their respective downtrends remain intact. In addition, high PE names like LNKD, DATA, WDAY, SPLK, CRM, and others are getting hit hard as the market moves into an environment of contracting PE-ratios. This is generaly typical of a bear market.
Consequently, the tech-heavy NASDAQ Composite was off more than 3% on heavier volume while the S&P 500 was off less than 2% on lighter volume. The NASDAQ now sits 16% under its peak while the S&P 500 has fallen less as it sits 11% under its peak.
The robust wage growth in Friday's jobs report worried investors as this gives the Fed more room to hike rates at some point later this year, though should markets fall further, the Fed will more than likely reduce rates by eventually adopting negative interest rates as have other central banks. This could put a floor under markets once again as the Fed attempts to manipulate markets higher since with negative rates, capital will have no choice but to flow into equities and hard assets thus providing a boost to stocks. This could create a slingshot effect skyward as we have seen many times before.
Federal Reserve Chairwoman Janet Yellen testifies on Wednesday and Thursday about the economy and monetary policy. Last week’s jobs data showed slower jobs growth, but decent wage inflation.
In the meantime, we remain in a downtrend and the Market Direction Model remains on a sell signal. With sharply narrowing leadership, no QE, and the Fed still leaning on neutral to higher rates later this year, there is little to support this market.
Futures are currently off about 2% as oil falls further and big-stock techs across the board look set to gap lower by more than 2% at the time of this writing.
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