On Sept. 8, the S&P 500 Index (SNPINDEX:^GSPC) continued to tumble lower, with today's 95-point decline erasing 2.8% in value. That marks the third-straight session where the index, which makes up about 80% of the market value of all U.S. stocks, finished lower. In total, the S&P 500 has lost almost 7% over those three days.
The narrative has been largely that the sell-off is the result of investors selling big-tech stocks after months of bidding up the companies that have done the best so far this year. The painful reality is that it's not just tech stocks leading the market lower. Almost 450 of the 505 stocks in the S&P 500 finished lower today, and 181 fell more than 2.5%. In addition to the continued tech exit, energy stocks were brutalized today following news that Saudi Arabia was cutting oil prices in key markets, including the United States.
A deep, wide sell-off
There weren't any winning sectors in the S&P 500 today, and several experienced almost-universal selling, including energy, financials, and materials. In the industrials sector, airline stocks and heavy-equipment maker Caterpillar (NYSE:CAT) were the only stocks that moved higher.
No single sector saw more stocks gain than lose. The closest was consumer discretionary, where about 25 of the 61 stocks gained in value. No other sector saw more than five stocks gain in value today.
Rare good news lifting GM
General Motors (NYSE:GM) has had, like most other automakers, a tough 2020. But today was a big day for the auto giant following news that it had inked a 10-year deal with upstart Nikola (NASDAQ:NKLA) to partner on the engineering and manufacturing of several planned Nikola electric and hydrogen vehicles. Shares of GM surged almost 8%, making it easily the best-performing S&P 500 stock on the day.
The tech exit continues
The tech and telecom sectors may not have been the hardest hit today, but it was still painful. The selling kicked off last Thursday when the trillion-dollar club members Apple (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT), along with Facebook (NASDAQ:FB) (which is almost there), all fell more than 4%. Today saw all four fall at least 3.7%, putting the group down more than 11% over the past three trading days.
Apple was the biggest loser of the tech behemoths, falling 6.7% on the day, with Microsoft losing 5.4% as investors cashed out on the big run-up in both tech-giant's shares this year.
Energy stocks brutalized as Saudi Arabia wields pricing power
Saudi Arabia is the global oil behemoth, with control of some of the largest, cheapest oil reserves on earth. It has immense pricing power, and as oil demand remains weak due to the coronavirus pandemic and the seasonal summer demand peak ends, the country is using that pricing power to bludgeon its way to maintaining and even taking market share.
Crude oil prices crashed hard today, following weekend news that Saudi Arabia was cutting prices for October crude deliveries to Asia and the U.S. Also, brent crude, an important global benchmark for gasoline and other refined products prices, along with the key U.S. West Texas Intermediate price, fell 5.3% and 7.4%, respectively, today.
This huge move sent both benchmarks below $40 per barrel for the first time in months, erasing an entire summer's worth of gains and some optimism that U.S. oil producers were finally going to see a clear path forward.
Today's biggest losers were Apache Corp (NASDAQ:APA), Diamondback Energy (NASDAQ:FANG), and Occidental Petroleum (NYSE:OXY), all down 9.7% or more. Of this group, Oxy is at enormous risk, with billions in debt coming due in the next couple of years that it will have trouble servicing if oil prices remain below $40 persistently.
The biggest takeaway for investors is that pricing power is enormously important when you sell a commodity. Between Saudi Arabia and Russia, weak oil demand will likely have the two global oil giants poised to fight over every barrel of oil they can sell. Marginal production, like U.S. shale, is the biggest loser so long as demand and prices stay low.
No flight to safer stocks
This wasn't a "flight to safer stocks" day, either. Sectors that are typically viewed as being safer investments during economic uncertainty, including real estate, consumer staples, and utilities, also experienced broad, deep selling. Of the 91 S&P 500 stocks in these sectors, which are generally viewed as having the best prospects for recurring revenues and sales during weak economic periods, only eight gained in value.
Unlike on Friday, when we saw some "asset rotation" as banks gained while most other stocks fell, today's selling looks like investors taking cash out of stocks.
What happens next?
Whether the run lower continues or investors get back to buying tomorrow remains to be seen. There are great arguments for both. The economy is still in brutal shape as the coronavirus pandemic continues and record numbers of people remain unemployed, even as Congress struggles to reach any deal to provide additional financial aid.
Yet interest rates are at record lows, and those who are working continue to spend, buy homes, and yes, invest. Those low interest rates provide incentive for investors to eschew bonds, taking on risk to capture yield or capital returns.
Moreover, hopes of a vaccine continue to drive optimism, and at some point, we will beat COVID-19. We just don't know when it will be (though the smart money says it's not going to happen before sometime next year).
The point is that, as much as 2020 may be different, there's one universal truth that's unchanged for stocks: Nobody knows what will happen over the next week, month, or year. If you're protecting cash you'll need in that period of time, stocks are a great way to lose part of it. If you're investing for a need that's a decade in the future, stocks are more appropriate. Invest accordingly.