The streak is over.
After the S&P 500 and Dow each finished higher for eight consecutive weeks, this past week saw the indexes lose ground, even if only by a bit. When the dust settled, the Dow lost about 0.5% this week while the S&P and tech-heavy Nasdaq slipped 0.2%.
In the week ahead, the retail sector will be the key for investors with the October report on retail sales and major earnings in the space serving as catalysts.
Notable earnings this week will include Home Depot (HD), Walmart (WMT), TJ Maxx parent company TJX (TJX), Target (TGT), Victoria’s Secret parent company L Brands (LB), Cisco (CSCO), Tyson Foods (TSN), Viacom (VIAB), Best Buy (BBY), The Gap (GPS), and Foot Locker (FL).
Elsewhere on the economic calendar, Wednesday will bring investors the October reading on consumer prices alongside the latest data on retail sales, with Tuesday’s report on small business optimism from the NFIB also highlighting the schedule.
Investors will also keep an eye on progress in Washington, D.C. on tax reform, which this past week saw Senate Republicans unveil their own version of a plan to cut taxes for businesses and some Americans.
Monday: No major economic data set for release.
Tuesday: NFIB small business optimism (104.5 expected; 103 previously); Producer price index, October (+0.1% expected; +0.4% previously)
Wednesday: Consumer price index, October (+0.1% expected; +0.5% previously); “Core” CPI, year-on-year, October (+1.7% expected; +1.7% previously); Empire State manufacturing, November (25 expected; 30.2 previously); Retail sales, October (+0% expected; +1.6% previously)
Thursday: Initial jobless claims (234,000 expected; 239,000 previously); Philly Fed manufacturing, November (24.1 expected; 27.9 previously); Import price index, October (+0.4% expected; +0.7% previously); Industrial production, October (+0.5% expected; +0.3% previously); Homebuilder sentiment, November (68 expected; 68 previously)
Friday: Housing starts, October (+5.6% expected; -4.7% previously); Building permits, October (+2% expected; -4.5% previously)
The sell-off that wasn’t
This past Thursday, the Dow was down over 200 points at its lows and the S&P 500 nearly broke its more than 40-day streak of no losses greater than 0.5% for a given session.
Through Thursday afternoon, stocks regained some of their losses and after an uneventful Friday, markets went into the weekend amid relative calm and only modest losses. But with markets having done seemingly nothing but go up all year, Thursday’s action prompted analysts at Bank of America Merrill Lynch to go so far as to assure clients that this sell-off was not “the big one,” Reuters reported.
And keep in mind that these notes grow out of conversations analysts are having with clients, or queries they’re receiving from them, and so a move that, in the grand scheme of markets is benign, was seen as “the start of something.”
In a note to clients published Friday, analysts at Bespoke Investment Group had some firmer words for an investment community that appears to see a half-day of markets falling almost 1% as action worthy of potentially reassessing one’s market view.
“‘Coddled’ and ‘Entitled’ are sometimes two terms that you hear as a derisive way to describe millennials, but lately we’re wondering whether a lot of investors are more deserving,” Bespoke writes.
“Take this past Thursday. Watching the way the investment community responded to market movements this week we can only ask if the lack of volatility that we have seen in the last twelve months has warped peoples’ minds…In conversations we had with colleagues and in a number of stories we read, the term pullback and even correction came up more than a few times. ‘What do you think of the pullback?’ ‘Should we buy the correction?’ Seriously!”
The firm notes that throughout market history, about 2% of trading days have seen markets fall 2% or more. With the Dow sitting just above 23,400, a 2% daily drop would be a point decline of just under 500 points.
If market history tells us that stocks usually go up over time, so too do they go down. A 500-point loss in a single day would certainly see investors ask a number of questions about whether the market, for instance, is finally appreciating the risks of the Trump presidency, and so on.
And while we deem it unlikely that many investors would see a 500-point sell-off in the Dow as a relative non-event, market history tells us that this is precisely what such a day would be. It’s been over a year since the market has declined 3%, the longest streak on record according to Charlie Bilello. That streak will, in time, be broken. How investors handle this will be a great study in investor psychology.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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