After a turbulent October, investors were hoping for a relief from the sharp selloff as we move into the slow holiday season. There was some initial relief at the beginning of November as markets rebounded but that turned out to be a dead cat bounce when market started selling off again as crude oil price started plunging. All three major indices, S&P 500, NAQSDAQ 100, and Dow 30 year-to-date return turned red for the fourth time this year.
From a sector perspective, Information sector led the selloff mostly driven by Apple as investors process the new quarterly disclosure policy where they will discontinue announcing the unit sale of individual product category. The market viewed this as a big red flag and raised concern over future iPhone sales which is essentially Apple’s primary cash-cow. This fear spilled over into semiconductor names such as Qualcomm and Skyworks because of their exposure to iPhone sales.
Energy was the second worst performing sector as oil price continue to plunge. Within the last seven weeks, U.S. WTI benchmark prices have dropped from the highs around $76 in early October to $52 as of 27 November. As in the case of any commodity, the drop was due to rising inventory levels. The weekly inventory level has been trending up since September and is edging closer to upper end of 5-year range. This 5-year range is an important barometer for gauging the health of physical 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. Should we continue on the current path and break above the upper end of 5-year range, we could possibly see a repeat of 2015/2016 sub $30 oil price.
On the other end, healthcare and utilities were two best performing sectors as investors move into defensive sectors. Healthcare outperformance has been especially interesting because most of the heavy lifting in the sector were performed by major drug companies. Out of the top five best performer, four were drug companies. This quite puzzling because of the current negative political climate around drug pricing.
By Baruch IMG’s Portfolio Management Team