Stocks and Bitcoin took a tumble after the Fed’s last meeting of 2024. But did the fundamentals really change that much?
Thursday’s TLDR
- Stocks, bonds, gold and Bitcoin fall
- Dow falls more than 1,100 points
- J&J approaches potential support
What’s happening?
The S&P 500 has had more decliners (stocks that went down) in each of the last 13 days than advancers (stocks that went up). Yet the index was still up 0.3% for the month coming into yesterday’s session.
The Dow has fallen in 10 straight sessions, while the S&P 500 value index has fallen in 13 straight sessions. This is what I meant yesterday when I said it’s been a “weird” couple of weeks.
So why hasn’t it felt like the market has had bad breadth or that the Dow has fallen for two straight weeks? The answer is mega-cap tech, which was back in the driver’s seat after a strong performance from the Magnificent 7, along with a few others like Netflix, Broadcom, and Salesforce.
Yesterday, everything seemed to fall: stocks, bonds, gold, and Bitcoin. Today, you’ll hear panicked commentary about the markets — how risk assets plunged or the VIX rallied 75%. While Wednesday’s action was a wake up call for bulls, one day of action doesn’t collapse the pillars of an entire bull market.
My gut says that a lot of yesterday’s action was mechanically driven, meaning a lot of the selling was forced due to end-of-year positioning, the options market (which has a big expiration tomorrow and another on Dec. 31), and unwinding trades that had too much leverage.
That doesn’t mean it’s all peachy and that yesterday marked the low. We could certainly have more downside in the days or weeks ahead. But I’d be hesitant to go from bull to bear from one day of action.
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The setup — Johnson & Johnson
After yesterday’s market selloff, Johnson & Johnson may not be the most exciting trading vehicle in the world. But on Wall Street, it’s not about excitement. It’s about making money.
Shares of J&J have had a tough 2024, struggling to gain much upside traction. Now though, the stock is dipping into what has been a key support zone.
Bulls want to see continued support in the low-$140s. If it holds, a bounce back toward $150 or higher could ensue. If it fails, bearish momentum could continue.
On the fundamental side, J&J is often considered a blue-chip name — even if the stock hasn’t performed like it lately. The stock pays out a dividend yield of roughly 3.5%, and when management raised the dividend in April, it marked the 62nd consecutive year with a dividend increase.
Shares trade at roughly 14.5 times next year’s earnings estimates where analysts expect about 6.6% earnings growth on 2.8% revenue growth. However, free cash flow expectations call for a big increase, to the tune of 30%.
Options
For options traders, calls or bull call spreads could be one way to speculate on support holding. In this scenario, options buyers limit their risk to the price paid for the calls or call spreads, while trying to capitalize on a bounce in the stock.
Conversely, investors who expect support to fail could speculate with puts or put spreads.
For those looking to learn more about options, consider visiting the eToro Academy.
What Wall Street is watching
DJ30 — The Dow Jones shed more than 1,000 points yesterday, falling 1,123 points. That marks a decline of “just” 2.6%, hardly one of the Dow’s worst days from a percentage standpoint, but a massive decline from a points perspective. The most commonly traded ETF for the Dow is the DIA. Down 10 days in a row, it’s the Dow’s longest losing streak since 1974.
MU — Shares of Micron are plunging this morning, down more than 10% despite beating on earnings and revenue expectations. However, management’s outlook was well below expectations, forecasting revenue of $7.7 to $8.1 billion and earnings of $1.33 to $1.53 per share vs. estimates of roughly $8.9 billion in sales and profit of $1.93 a share. Check out the chart here.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.