Nasdaq Breaks Key Support as Apple Tumbles; Market Finds Silver Lining in Weakness

Thursday's stock market session was a rout. The Nasdaq composite fell 3.5%, the S&P 500 dropped 3.2%, and the Dow Jones Industrial Average sank 2.3%—its worst day in three months. All three major indexes broke below their 50-day moving averages for the first time in just over a month, signaling a shift in momentum that has left investors scrambling to reassess their positions.

The selling had multiple triggers. Before the market opened, November retail sales came in unexpectedly weak, declining 0.6%. Regional Federal Reserve surveys from Philadelphia and New York both pointed to economic contraction in December. Across the Pacific, China reported weaker-than-expected industrial production and retail sales figures, raising concerns about global growth even as the country rapidly eases its Covid restrictions—a move that economists worry could unleash a massive wave of infections that might further dampen economic activity. The Federal Reserve's hawkish stance on interest rates, made clear in recent communications, hung over the entire session like a weight. Jobless claims did decline significantly, but that news landed poorly: the Fed does not want to see a tight labor market when it is trying to cool inflation through rate hikes.

The damage was concentrated in the stocks that had led the market higher. Apple tumbled 4.7% to 136.60, marking its worst single day since late September. The stock is now trading near its October-November lows, with the June bear-market low of 129.04 within striking distance. Amazon sank 3.4% to 88.45, approaching its November 9 bear-market low of 85.87. Microsoft retreated 3.2% to 249.01, finding support at its 21-day moving average but having tested its 200-day line in the two sessions prior. Nvidia fell 4.1% to 169.52, dropping below its 200-day line after having reclaimed that level just three trading days earlier. The chip sector as a whole was battered, with the VanEck Vectors Semiconductor ETF tumbling 3.8%. HSBC initiated coverage of Nvidia with a reduce rating and a price target of 136, well below where the stock was trading. Tesla dipped to a fresh two-year low of 153.28 in the morning before rebounding to close up 0.5% at 157.67, though the stock remains down 12% for the week. Late Wednesday, CEO Elon Musk had disclosed selling 22 million Tesla shares between December 12 and 14 for $3.6 billion, adding to investor frustration.

There were a handful of bright spots. Adobe reported better-than-expected fourth-quarter earnings late Thursday and guided slightly higher on fiscal first-quarter earnings, though it guided lower on revenue. The stock popped 5% in after-hours trading despite closing down 3.3% during the regular session. Exact Sciences surged more than 20% after a rival's clinical trial results for a colorectal cancer blood test proved strong enough to qualify for Medicare reimbursement—a win that paradoxically hurt Guardant Health, which makes the competing test and saw its stock crash nearly 40%. A few individual stocks found support on earnings, including Lennar and Nordson, but these were exceptions in a broad selloff.

Broad measures of market health deteriorated. The Russell 2000 small-cap index skidded 2.5%. Growth-focused ETFs were hammered: the iShares Expanded Tech-Software Sector ETF fell 3.5%, while the ARK Innovation ETF sold off 4.9%, trading just above its five-month low. The ARK Genomics ETF retreated 3.5% to a six-month closing low. Energy prices weakened, with crude oil retreating 1.5% to $76.11 a barrel and gasoline futures slumping 3.5%, though natural gas prices leapt 8.4%. The 10-year Treasury yield fell 5 basis points to 3.45%, a move that likely reflected recession fears rather than any easing of inflation pressures.

The question now is whether the market's two-month rally from the October 13 low to the December 13 high was merely a bear-market bounce that is now exhausting itself. All major indexes are at their lowest levels since November 10, when they gapped up on better-than-expected October consumer price index data. The Nasdaq is trading near where it was on October 21, the day of the follow-through signal that had suggested a new uptrend was beginning. Investors who bought on relative weakness over recent weeks—pulling back to the 21-day moving average, for instance—are now seeing those positions underwater as the indexes undercut their recent lows.

There is, however, a silver lining in the wreckage. Few stocks are flashing conventional buy signals in this environment. The market weakness has made it easier for disciplined investors to stay on the sidelines rather than chase stocks that might reverse sharply lower. The danger in choppy markets is that they tempt investors into positions that immediately reverse, locking in losses. For now, the path of least resistance is to reduce exposure and wait for clearer signals. A couple of strong days could revive the rally and push stocks back into buy areas, so investors are advised to keep their watchlists updated and monitor which stocks are holding key support levels like the 21-day or 50-day lines. The market direction remains uncertain, but the discipline required in this environment is becoming clearer by the day.