Stocks could be set up for another violent week of selling
- Stocks are set up to test recent lows in the week ahead, coming off one of the worst weeks of selling this year.
- The S&P 500 was just 2 points above its November low, a key technical area, and was down 4.6 percent for the week.
- Analysts will be watching retail sales and inflation data, but the most important developments for markets will be in U.S.-China trade relations.
- Treasury yields could continue to move lower, after the biggest one-week move in the 10-year since 2015.
The past week was one of the worst of 2018, with the Dow down 4.5 percent at 24,388, and the Nasdaq down nearly 5 percent, at 6,969. The S&P 500 was down 4.6 percent at 2,633, just 2 points above its November low. The S&P suffered its worst week since March and the third worst of the year.
As stocks melted down, bonds rallied, sending their own spooky message as the yield curve flattened and even inverted at some points — a sign of potential economic trouble ahead. The yield on the benchmark 10-year Treasury, which influences mortgages and other loans, started the week at 3.02 percent and was at 2.85 percent Friday, its biggest one-week move since October 2015.
There is some important data in the week ahead that the bond market will be focused on, including CPI inflation data Wednesday and November retail sales on Friday.
“I think we’re in a holding pattern, waiting to see if we get oversold on the S&P and look for some sort of oversold bounce, and I wouldn’t be surprised to see a lot of selling into that bounce until we get some substantive news, making investors feel confident. I think the market feels vulnerable,” said Sam Stovall, chief investment strategist at CFRA.
Investors have been fretting about uncertainty over U.S. trade relations with China, as well as the fact the economy looks to be growing more slowly. What appeared to be a promising meeting last weekend between President Donald Trump and Chinese President Xi Jinping sparked a one-day rally but gave way to skepticism and doubts especially after the arrest of a prominent Chinese telecom executive.