THE BIG PICTURE
Market Reverses Lower After Fed Speech
BY JUAN CARLOS ARANCIBIA INVESTOR'S BUSINESS DAILY
A promising start descended into a weak finish Thursday as the major stock indexes and a number of leading stocks reversed lower.
The Nasdaq showed a gain until the final hour of trading as the tech heavy index closed 0.5% lower. Volume rose, giving the composite its fifth distribution day in the past four weeks.
The small-cap S&P 600 gave up 0.6% and the mid-cap S&P 400 fell 0.4%.
Big caps fared better.
The Dow rose 0.2% and the S&P 500 edged down 0.1%. Volume was modestly higher on the New York Stock Exchange, where many energy stocks led the way down on heavy trading.
Stocks opened higher, buoyed by strong earnings from the likes of Aetna and Best Buy.
But the market turned south around 1 p.m. Eastern. About that time, news wires reported that Chicago Fed President Michael Moskow said interest rates are at a neutral level, though further increases — even pre-emptive steps — may be necessary if inflation turns higher.
That was an alarming tone for many investors, who had already been spooked by last week’s payroll costs. In addition, the fourweek moving average of jobless claims hit the lowest level in nearly six years Thursday. A tight labor market might force firms to bid up wages even more.
The benchmark 10-year Treasury’s yield fell four basis points to 4.55%, in part because the first auction of the reborn 30-year bond was met with strong investor demand.
Yields on shorter-term debt, however, were little changed or rose some. In the end, the bond market saw more of the yieldcurve inversion that sometimes heralds a weakening economy.
The signals on the interest-rate front soured stock investors.
Quality Systems tumbled 8% and closed below its 50-day moving average on a 239% spike in volume. The maker of information management systems for medical practices missed quarterly earnings estimates by 10 cents a share after the close. Shares crashed lower.
Many other leaders tracked the general market and reversed lower or finished at their intraday lows. Some that rose did so on less volume than in their declines Wednesday.
The technical action in the main indexes also is dubious.
The S&P 500 and Nasdaq weren’t able to stay above their 50-day lines Thursday. Both had used that trend line as a support level in their last two pullbacks.
The number of distribution days is rising. Earlier distribution days were muted by slow holiday-season trading, but the latest ones haven’t had those qualifiers.
The market’s leadership is also shifting. Apple, Google and loads of energy stocks have stumbled. Chip and memory stocks are picking up some of the slack.
The market has gotten past earnings season, but it still has to deal with the possibility of the fed funds rate rising to 5% or more, plus the squabble over Iran’s nuclear program, which threatens the world’s oil supply. |
