INSTANT VIEW 3-Wall Street rout continues in early trade

NEW YORK, Nov 20 (Reuters) - U.S. stocks tumbled in early trade on Tuesday. The S&P 500 hit a three-week low as weak results and forecasts from a bunch of retailers including Target and Kohl's fanned worries about holiday season sales, while tech stocks continued to slide on concerns about iPhone demand.

Apple Inc's 3.8 percent fall added to the pressure as the stock that led the market through much of its bull run opened at its lowest level since early May, pushing the tech-heavy Nasdaq to more than 7-month lows.

The Nasdaq, S&P 500 and Dow Jones Industrial Average were all down more than 2 percent at one point during morning trade and the S&P traded back into negative territory for the year.




"You can make an argument that the tax effect is a front-end-loaded type of deal. Whats happening now is more about uncertainty. Uncertainty about the Fed but also uncertainty with regards to trade. On earnings calls recently there were 10 percent or less of the companies had any sort of commentary on tariffs or trade. But its the uncertainty thats out there that the markets are preparing for. And uncertainty is when fear creeps in. And fear is a much stronger emotion than greed. Which is one of the reasons thats driving the VIX higher and higher."

"Volume does have an effect. We do have a holiday week. Its typically a quieter week in terms of trade volume and thats going to exaggerate things on the up or the downside."


There is lots of bad news hitting the tape all at once in a nervous market. Boeing cancelling their conference call was a bad surprise for nervous investors. The Goldman Sachs downgrade of Apple analysts have lost a lot of credibility on Apple. Margin calls in FANG stocks are weighing on shares. Facebook going green is bullish and wouldnt be surprised to see an afternoon rally in tech after the margin selling has been alleviated.


There are the headwinds of the trade war out there. The fiscal stimulus from tax cuts is starting to fade. The Federal Reserve policy of normalization, the (corporate earnings) outlook going forward we dont have many positive catalysts.

The earnings for Q3 were good, but the guidance going forward for Q4 has come in below expectations. Youve seen that in the retailers as well as large-cap tech names like Amazon, Apple, Facebook Its been one of the positive catalysts that have pushed the market up for most of this year. Now thats fading, so people are more apt to take profit and de-risk going into the year-end.

On whether weak corporate bond market was affecting stocks: Its a similar situation of de-risking.For several years, corporate bonds have been trading at a tight spread to Treasuries. It was a sign of complacency, not enough of a risk premium being in them. Now that youre seeing a little more weakness as far as the corporate earnings picture, theyre starting to price that in, and of course, the fact that interest rates are rising, youre seeing a risk premium coming into the corporate bond market.


The upward momentum was broken back in September with the back-to-back imposition of the tariffs on Sept 24 and then the Fed removing 'accommodative' from their policy statement on Sept 26. Ever since then, the environment has been much more challenging.

The most recent downward movement pretty clearly was Apple related. The shift of a new concern is over a slowing economy.

When you see some of the struggles specifically starting with the Apple guidance for the fourth quarter and then today with the retailers, which come out with cautionary tone about the economy, now you are looking at rising interest rates, all these costs and disruptions related to the trade policy, and an economy domestically that may be showing signs of slowing. You also had bad housing numbers. So you have a lot of mounting evidence that the economy is softening and then that leads to downward earnings revisions.

There is so much trading money, and what is that money? Thats all momentum money. All the volume that trades has really been momentum-based and continues to be and now the momentum has turned the wrong way. Just a lot of factors creating a very difficult environment.

Is what youre seeing in the corporate bond market worrisome from equity perspective?: What you started to see recently is a widening of the spreads of the high-yield market over the Treasury market. That is another sort of risk-off sign. The high yield market was hanging in there pretty well. Spreads were just as recently as a maybe month ago or so really tight. So just another sign that there is concern out there.