What was a rather quiet day on the street got a little more interesting in the afternoon. Stocks slid a bit after the release of the minutes of the latest Fed meeting, and took a quick dive on news of a plane crash into a high-rise building in New York, but recovered when it became known that it did NOT appear to be an act of terrorism. But the bond market sold off on the Fed minutes, and stayed down. Here is how the major stock indices ended the day - despite the move up in interest rates, utilities have been holding their ground:
| Dow |
11852.13 |
-15.04 |
-0.13% |
| S&P 500 |
1349.95 |
-3.47 |
-0.26% |
| Nasdaq |
2308.27 |
-7.15 |
-0.31% |
|
| Russell 2000 |
741.71 |
-4.17 |
-0.56% |
| Dow Transports |
4592.53 |
-47.79 |
-1.03% |
| Dow Utilities |
433.11 |
+0.50 |
+0.12% |
|
Bonds reacted poorly to the somewhat hawkish FOMC minute, and that added to the rather swift movement upward in interest rates over the last week:
6-month: 5.10% 2-yr: 4.85% 5-yr: 4.75% 10-yr: 4.78% 30-yr: 4.90%.
Market internals were slightly negative, but volume ticked up, to the highest levels in a week on the Nasdaq. Advances trailed declines by 8 to 11 on both exchanges, while up/down volume was 4 to 5 on the NYSE and 12 to 13 on the Nasdaq. New highs/lows were 152/18 on the NYSE and 131/38 on the Nasdaq.
In the groups, more losers than winners. Only the semiconductors were able to put up significant gains, up 1.4%. Leading on the down side were the brokers (-3.9%), oil services (-2.2%), gold and silver stocks (-2.1%), natural resources (-1.5%), homebuilders (-1.3%) and chemicals (-1.1%).
Energy prices dropped, with crude oil slipping almost a buck to $57.59/barrel. Gasoline fell a couple of cents to $1.45/gallon, and natural gas saw its first significant drop in a few weeks, falling to $6.15/mmBTU. The dollar index was just slightly higher to 87.13. Gold was unchanged at $573/ounce and silver gained a few cents to $11.17/ounce.
BMB Note: So far, this has been a rather uneventful week for stocks, but not for bonds. Just a few trading days ago, the 10-year yield was at 4.56%, today it stands at 4.78%. A pretty significant move in rates in a short period of time. Maybe the bond market is changing this mind about the slowing economy - or the slowing inflation. That leaves us in a bit of a quandary: everyone looked upon the falling rates as good news, even though they seemingly forecast a slowing economy. So will the rising rates be good news? Do they indicate a stronger-than-originally-believed economy? Or do they indicate rising inflation fears? Or both?
And what does that mean for stocks? If I knew the answer to that, I’d be living on a beach in Hawaii. For now, the rally has stalled, and the indices have traded in small, sideways ranges for a few days. That isn’t a bad thing, by any stretch. And some controlled pullback would be good for the market, and might help relieve some of the overbought tension. On the other hand, a selloff in concert with a falling bond market probably wouldn’t be good news. But until we start to see more weakness in stocks and some trendlines start to break, there isn’t any reason to be panicky. Just pay attention to what’s going on, and be ready to act should things change, in either direction. As William Eckhardt said in “The New Market Wizards”:
An old trader once told me: “Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there.”
In particular, you should spend no time at all thinking about those roseate scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response should be.
