Apple shares drop nearly 4% on Friday ahead of policy meeting
All eyes will be on the Federal Reserve Wednesday for signs of how it will follow through with a widely anticipated interest-rate hike and how that will bear on cyclical stocks like tech, which experienced a sharp selloff on Friday.
The Dow Jones Industrial Average , which closed at a record, was the only benchmark to finish higher Friday and for the week (http://www.marketwatch.com/story/us-stocks-tipped-for-more-gains-as-investors-weigh-up-uk-election-results-2017-06-09), even with a 3.9% decline in Apple Inc (http://www.marketwatch.com/story/apples-stock-tumbles-on-track-to-snap-124-session-streak-above-50-day-moving-average-2017-06-09).(AAPL) shares, as tech stocks drove both the S&P 500 index and the Nasdaq Composite Index lower.
Read:Nasdaq just blew its biggest lead in 15 months as tech stocks unravel (http://www.marketwatch.com/story/nasdaq-is-threatening-to-log-its-biggest-blown-lead-in-212-months-as-tech-unravels-2017-06-09)
The CBOE Volatility Index bounced off a 23-year low on Friday, finishing up 5.3% at 10.70.
Read: Wall Street's fear index bounces off 23-year low as tech stocks sink (http://www.marketwatch.com/story/wall-streets-fear-index-bounces-off-23-year-low-as-tech-stocks-sink-2017-06-09)
A Fed rate hike is baked into the market with CME Group's FedWatch Tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html) showing a 99.6% probability for a quarter-point rate hike, and a 0.4% probability for a half-point one.
"With this rate hike, the only 'black swan' we get is if we don't get one," said Sahak Manuelian, managing director of equity trading at Wedbush Securities. "People will listen to what the Fed has to say; it's nice to have insight into the balance sheet."
That, however, will be seen through the lens of a sudden downturn in the tech sector, which finished down 2.7% on Friday.
"[Tech] has been ripping higher for the past 12 months," Manuelian said. "Things can get ugly very quickly but one day is no indication of a trend."
Even with Friday's selloff, the tech sector has been the strongest performer on the S&P 500 over the past 12 months with a nearly 31% gain, according to FactSet data.
Before Friday's tech selloff, Peter Boockvar, managing director at the Lindsey Group, said his primary focus for the coming week was whether the Fed was going to stick to its intentions for a September rate hike and follow through on tightening monetary policy. Now with Friday's tech selloff, that shifts the focus on how rate hikes will affect cyclical stocks in a period of modest economic growth, he said.
"Is the tech selloff the beginning of something more in an overcrowded space? Is this a one-day wonder or has the market reached a point where gravity actually exists in these stocks?" Boockvar said. "People forget [tech stocks] are cyclical stocks."
Read: Will tech rally continue? Hedge funds say yes, but mutual funds say no (http://www.marketwatch.com/story/will-tech-rally-continue-hedge-funds-say-yes-but-mutual-funds-say-no-2017-06-05)
Boockvar's concern is that with a flattening of the yield curve (http://www.marketwatch.com/story/market-warns-fed-about-further-rate-hikes-2017-06-09), rate hikes will affect growth and those stocks that are sensitive to growth, namely tech and other cyclical stocks.
Continued controversy out of Washington is also weighing on the minds of investors, Manuelian said. While some may argue that probes into Russia's involvement in the 2016 election are hampering President Donald Trump's ability to cut deals on tax and health-care reform, the patience of investors for this excuse is wearing thin, he said.
"I don't feel there's a lot of clarity and not a lot is getting done," Manuelian said. "If we don't see steps taken, that's going to weigh on markets. Is this administration really going to get things done, or is there going to be a lot of jawboning about not getting things passed?"
(END) Dow Jones Newswires
June 12, 2017 02:32 ET (06:32 GMT)