After a week that was expected to be a bit calmer amid a rush of retail earnings announcements, worries over North Korea came prominently into the fore this past week.
On Wednesday, stocks modestly sold off after President Donald Trump said he would respond to threats from North Korea with “fire and fury.” On Thursday, these jitters turned into heavier selling, with the S&P 500 ultimately enduring its second-worst day of the year and snapping a streak of 58-straight days without a 1% loss.
As we noted, these streaks of low volatility being snapped with a down day do in time see the markets trade higher. And as Yahoo Finance’s Nicole Sinclair reported on Friday, stocks often do worse ahead of an armed conflict than when something actually breaks out. On this background, then, if North Korea worries are really going to take down the market, we’ll see the sell off before something happens.
This week was also a busy one for earnings, with the most notable reports leading to some huge sell-offs across the street. J.C. Penney (JCP) shares on Friday fell to an all-time low after earnings, dropping 16% to settled at $3.93. On Thursday, Macy’s (M) lost 10% after earnings.
On the tech side, losers included Snap Inc. (SNAP), which fell 14% after disappointing results and Blue Apron (APRN), which lost 17% on Thursday after earnings. Nvidia (NVDA), which has been a market leader this year, was also down 9% in the final two days of the week despite an earnings beat following results out after the bell on Thursday.
Walmart will of course be closely watched as the company’s fortunes have been tightly intertwined with the U.S. consumer and it’s ongoing efforts to challenge Amazon (AMZN) have garnered increasing media attention. Home Depot results will be tracked as a barometer of the U.S. housing market.
Also reporting earnings this week will be a slew of retail names including Coach (COH), TJ Maxx parent-company TJX (TJX), Target (TGT), L Brands (LB), Ross Stores (ROST), and Gap (GPS). Other notable earnings expected this week include Cisco (CSCO), Deere (DE), and Staples (SPLS).
- Monday: No major economic data releases scheduled.
- Tuesday: Import price index, July (+0.1% expected; -0.2% previously); Retail sales, July (+0.4% expected; -0.2% previously); Empire State manufacturing index, August (10 expected; 9.8 previously); Homebuilder sentiment, August (64 expected; 64 previously); Business inventories, June (+0.4% expected; 0.3% previously)
- Wednesday: Housing starts, July (+0.8% expected; +8.3% previously); Building permits, July (-2% expected; +7.4% previously); FOMC Minutes, July 26 statement
- Thursday: Initial jobless claims (240,000 expected; 244,000 previously); Philly Fed manufacturing index, August (19 expected; 19.5 previously); Industrial production, July (+0.3% expected; +0.4% previously)
- Friday: University of Michigan consumer sentiment, August (94 expected; 93.4 previously)
Markets are efficient, IPO edition
The two most talked-about initial public offerings this year have been Snap Inc. and Blue Apron.
These are two of the most well-known unicorns (or startups worth more than $1 billion) to emerge from the post-Facebook era — alongside other well known unicorns like Uber and Airbnb — and their debut was hotly anticipated amid both a tough VC and IPO environment.
Since going public, both companies have been flops.
And while we can discuss issues like Snap Inc.’s share structure — the publicly-traded issues of Snap are non-voting shares, giving these shareholders no representation on corporate governance issues — potentially impacting the firm, the company’s business is simply not growing at a pace the investment community finds acceptable.
Blue Apron, which reported its first results as a public company this week, is similarly facing issues with growing revenue per customer and also projected worse-than-expected earnings in the second half of the year.
Both stocks are now down more than 45% from where they traded during their debuts. The market, in other words, has sniffed these companies out.
We talk a lot at Yahoo Finance about the merits of passive investing, which is sort of just a catch-all for buying products that charge low fees and give you broad exposure to the stock market.
Warren Buffett, for instance, who wrote in latest letter to Berkshire Hathaway shareholders that, “Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund.”
Buffett’s reasoning is that unlike him, the average investor will be unable to beat the market. And, of course, this math is necessarily true — the market is the average of all investors’ performance minus fees.
This is, of course, an unsatisfying bit of guidance to give many investors who feel they not only must exert some kind of agency over their investment decisions but also think they must know things that are worth something. All your kids, for example, may be using Snapchat like crazy. Doesn’t that make the stock a buy?
But in a world where there are thousands of people and computers mining the billions of bits of available data spit out by financial statements, the chances the average investor at home with a good idea has an edge are not good at all.
Snapchat makes a really fun social media platform and Blue Apron is fun to make and tasty to eat. But these companies’ problems were sniffed out by the market from the start. The market’s view, in the end, was justified and, ultimately, proven to be efficient.
So it’s not the market’s seemingly random day-to-day fluctuations that proves its efficiency — it’s the way Snapchat and Blue Apron got punished that reminds us we probably don’t have an edge.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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