Another “Black Monday” for stocks

For investors, Mondays continue to be the worst day of the week, after stocks witnessed another selloff day that push every single equity index diving into negative territory. Disappointing Chinese economic data mainly contributed to a weaker European opening on Monday, with continental markets extending their decline throughout the entire session. The German Dax lost 2.12%, and closed 3.28% below last year’s close price. The FTSE 100 had even a tougher day, declining as much as 2.45%, bringing the Index’s decline for the year to date to 9.25%. The pan-European Euro Stoxx 600 Index dropped 2.21% on Monday, closing below end-2014 levels. Automakers and commodities names were the major drag for equity markets, as investors are still punishing the car industry for the Volkswagen’s fraudulent scandal. Additionally, a research report suggesting that there is very little value in commodity giant Glencore Plc within a prolonged and continuously declining commodities price environment, pushed the stock price down a cliff, with Glencore losing over 28.5% by the end of the trading session in London, taking the entire sector down with it. The stock is up around 9% one hour into the trading session this morning, as speculative and contrarian value investors fueled a relief rally after the stock lost almost a third of its market capitalization in a day. However, with Glencore joining the list of notorious victims of depressed raw material’s prices, the commodity sector is moving closer and closer to a full-out crisis, and investors should consider avoiding it for the time being.

The negative news released from China, the unexpected drop in Glencore and the increasing concerns over global economic growth were behind the spill over to US stocks, which followed Europe deep in the red. The Dow Jones Industrial Average, which managed to remain positive on Friday, thanks to the rather positive earnings results released by Nike Inc., lost almost 2% on Monday, bringing the total loss for the year to 10.22%. The S&P 500, perhaps the most popular proxy for the whole US stock market, declined 2.57% in one of its worse performance of the year, extending this year’s decline to 8.6%. As one would expect, all large momentum stocks making up the large majority of the Nasdaq Index underperformed the overall market, pushing the Nasdaq to close at 4,543.97 points, 3.04% lower on the day, after the index lost an additional 1% on Friday. Weighting on the Nasdaq was also the continuous free fall of the biotech sector, which extended the heavy losses recorded last week. The statements of Presidential Candidate Hillary Clinton on the need to impose drug prices controls and concerns that the sector’s valuations might be over expensive for a market still in “correction mode” have prompt investors to black list all major pharmaceutical names, from biotech giant Gilead Science, to large pharma Merck & Co. and Eli Lilly and Co. Although the iShare Nasdaq Biotechnology Index ETF is still in positive territory for the current year, it has lost almost 18% over the last month, and the entire sector seems to be pointing to a correction resembling the sizable pullback witnessed in March last year. While the selloff in the pharmaceutical sector is one of the main causes for the recent retreat of US stocks, once the markets stabilize, this correction will surely offer advantageous entry points, offering investors the opportunity to pick up cash generating names at a severe discount and with a remarkable upside potentials.

Although falling prices present interesting buying opportunities, investors should remain cautious, as the downwards path of stocks seems not to be over yet, and futures seems to indicate that markets will go lower before getting better.