To the big-time buysiders, those investors more likely to check their portfolio by the season than the session, it was just another week. The S&P 500 still shows a big green number for 2019, after all.
Ditto the quants, with their multiyear horizons and programmed strategies. And hedge funds, whose nerves have been on show for a while now.
But for a host of investors, traders and analysts, this was the week markets finally woke up to a world of hurt.
President Donald Trump lit the touchpaper days before, signing an order effectively curbing Huawei Technologies Co.’s access to the American market. The reaction was slow burn, but by Monday U.S. stocks were extending declines as major chipmakers prepared to cease business with the Chinese giant.
Tuesday’s respite -- thanks to a partial walk-back of the ban -- was brief. By Wednesday, more companies were in Trump’s sights, and more losses ensued. Thursday was a sea of red as the Asian nation hardened its own rhetoric. Friday’s bounce wasn’t enough to prevent a fifth straight weekly drop for the Dow Jones Industrial Average, the longest slump since 2011.
The move against Huawei -- a metaphorical hand grenade in the heart of global tech -- has forced market participants to ditch the rose-tinted glasses. Now that they have, not only does the prospect of a prolonged trade war confront them, but a heap of other stuff too.
Simmering tensions in the Middle East. A looming change in the U.K. government. Impeachment clamor in Washington. Some familiar flash points in emerging markets. That’s an awful lot of risk at a time when many assets still look relatively expensive.
“The market needed an excuse to correct and the trade-war headlines were the trigger, but the underlying weakness is much more complex than that,” said Alberto Tocchio, the chief of Heron Asset Management, a Switzerland-based family office with 2.5 billion Swiss francs ($2.5 billion) under management. “A continuous deterioration of the macro environment, high valuations and political/geopolitical uncertainty are also importantly weighing on markets.”
Viewed from afar the U.S. stock picture doesn’t look bad. The S&P 500 is about 4% from a record peak, still up 13% in 2019, and price swings -- as measured by the Cboe Volatility Index -- are higher than a month ago but still at about the one-year average.
But look closer, and the flaws and imperfections become clearer -- and the biggest blemish is arguably the tech sector.