The Market This Week: Is the Sky Really Falling?

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Markets across the globe took a negative turn this week, prompting half of the financial world to predict the start of a major downturn and the other half shrugging it off. So which is it?

After only two days of trading in the red, it’s not clear how much longer the volatility will last. JPMorgan Chase’s (NYSE:JPM) earnings announcement, coupled with declines in the Internet and biotech sectors, shook investor confidence and caused a ripple effect across the market, already nervous from Federal Reserve Chair Janet Yellen’s hint that interest rates might rise from the 0 to 0.25 percent they have hovered at since 2008. The only sector to end the week relatively unscathed was emerging markets, with ProShares Ultra MSCI Emerging Markets ETF (NYSEARCA:EET) up 1.9 percent and the others within 1 percent of gain or loss.

Starting Thursday’s poor trading day was JPMorgan’s weaker-than-expected first-quarter results. The largest bank in the U.S. announced a net income loss of 19 percent, with declines across almost all businesses. In his annual shareholder letter, Chief Executive Jamie Dimon noted that JPMorgan had spent $2 billion more than usual on new mortgage rule implementation, and fines from last year’s settlement deals with regulators also cut into the company’s bottom line.

JPMorgan stock fell 5 percent on the news. Banks’ earning calls are generally seen as a reflection of the country’s overall health, but there are too many variables to solely view JPMorgan’s loss as an indicator. Wells Fargo (NYSE:WFC) posted higher-than-expected revenue but noted that the increase was due to onetime gains. A better general economic picture should be painted next week, when Citi (NYSE:C) and Bank of America (NYSE:BAC) post their results, as well.

Biotechnology stocks took the biggest dive, and tech-heavy Nasdaq dropped below 4,000, marking an 8 percent dip since March. By Friday’s close, both the Nasdaq Biotechnology Index (INDEXNASDAQ:NBI) and the iShares Nasdaq Biotechnology ETF (IBB) that tracks it closed at over 21 percent below their February peak and were still dropping after-hours.

The SPDR S&P Biotech ETF (NAR:XBI) lost 4 percent on Friday, bringing its decline from February to 27 percent. The First Trust NYSE Arca Biotechnology fared the best, not quite hitting the 20 percent loss mark by the end of trading. Even the most conservative analysts agree that biotech is going through an overdue correction, defined as a drop of 10 percent or more to adjust for overvaluation.

Old school trumped new school in the technology sector, as the less-glamorous companies propped up the ETFs containing them. IShares U.S. Technology ETF (NAR: IYW) — the top three holdings of which are Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG)(NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) — finished the week just below its yearly high. Internet stocks didn’t perform as well: Former high flyers Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), Netflix (NASDAQ:NFLX), and LinkedIn (NASDAQ:LNKD) each dropped between 19 percent and 45 percent below their peaks.

Global X Funds (NASDAQ:SOCL), the social media ETF, reflected this and suffered a 22 percent loss. While the numbers on paper seem drastic and there might be some overvaluation adjustments underway, it could be that investors saw the numbers thrown around during Facebook’s Oculus and WhatsApp acquisitions as well as Twitter’s new layout, designed to increase ad revenue, and got spooked. However, with social media’s immense ad revenue potential, it is too soon to tell if this week is a sign of more than temporary investor fickleness.

How long this turn will last, if at all, should be clearer on Monday morning, when we’ll see if the markets were gently shaken or if this week marked the beginning of a longer tumble.

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