Overbought conditions, remarks from the Fed chairman and a spike in oil prices combined to send the markets lower today, with the oil prices move being the only one that might have been a surprise. Oil moved higher by more than $2/barrel today, closing the day’s trade at $48.44.
The Dow Industrials dropped 115 points (-1.1%) to 10457, the Nasdaq fell 33 points (-1.6%) to 2070 and the S&P 500 lost 13 points (-1.1%) to 1170, with volume probably a little stronger than the bulls would have liked on a retreat. The Russell 2000 lost 9 points, or 1.4%, and the bond markets sold off a bit as well, pushing the 10-year yield back up to just under 4.2%.
Market internals were expectedly weaker, with advances/declines and up volume/down volume running about 3 to 7. There were about 240 new highs to 35 new lows.
Not too many winners in the industry groups, the exceptions being energy and commodity stocks. Oil services tacked on another 1.8% to their gains of yesterday, and gold stocks moved higher by 1.3%. The losers were widespread, with the worst damage done in airlines (-4.2%). Tech stocks and financials were next, with semiconductors dropping 3.1%, networkers down 2.8%, broker/dealers down 2.5%, and internet stocks down 2.3%.
Time to panic?? Not yet. Today’s declines were going to come sooner or later, and there should be more to follow. Greenspan’s comments on the trade deficit were more explicit than usual, but the idea isn’t a surprise to anyone who’s been paying attention. Everyone knows that the current account/trade deficit is high and the dollar is falling, and it’s going to take some changes to correct that situation - namely, more savings here at home and higher interest rates, and the markets don’t like higher rates. Now the oil spike is probably something to keep an eye on, especially since everyone has seemingly stopped noticing that oil is still above $45/barrel. High oil prices rarely lead to anything good, and often lead to economic recession. If the markets are going to head higher, they need to do some pulling back and consolidating here on lower volume, but an all-out rush for the exits would not be healthy. We’ll see what happens.
And today, BMB’s energy and metals plays are looking pretty good…