On Thursday, both the Dow and the S&P 500 fell for the fifth consecutive day as the flow of positive economic news continued.
Q3 GDP growth of 3.6%, the strongest since Q2 of 2012, was followed by an initial jobless claims report that fell more than expected. The combination left investors wondering if the Federal Reserve would begin reducing its $85billion-a-month bond-purchase program as early as this month.
The positive reports led to lower bond prices and higher yields. The 10-year note rose 3 basis points to 2.87% before closing at 2.86%. The focus today will be on the nonfarm payrolls report, which has a consensus estimate of 188,000 and 200,000.
The Dow Jones Industrial Average closed at 15,822, off 68 points, the S&P 500 fell 8 points to 1,785, and the Nasdaq lost 5 points at 4,033. The NYSE primary market traded 755 million shares with total volume of 3.6 billion shares. The Nasdaq traded 1.9 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, decliners were ahead by 1.4-to-1.
When it comes to discerning how the broad market is holding up, there are few better indices than the NYSE Composite. This index tracks every stock traded on the New York Stock Exchange, and so it tends to moderate extremes created by volatile sectors.
Note that it has declined 2.13% from its high of 10,230 — a very modest round of profit-taking. So far, it has held above its 50-day moving average at 9,954 and the important support line at 9,905-9,910.
Surprisingly, the theoretically more volatile Russell 2000 small-cap index is down just 2.14% from its high. It is still holding above its initial support at 1,116 (20-day moving average) and the 50-day moving average at 1,102. However, like the NYSE, it has flashed a sell signal from its MACD.
Conclusion: Thus far, the most-examined index by technicians, the S&P 500, has held above the important support line at 1,775. And even the more volatile indices, the Russell 2000 and Nasdaq, have held up well under five straight days of selling.
Interest rates have risen because of an improving economy and the increasing likelihood that the Fed will begin the messy process of unwinding its bond-purchase program. But there has been so much talk of the tapering process that the market may have discounted all but a complete halt, which is very unlikely. In fact, several governors have recently said that the program would continue at a much lower number far into 2014.
The most effective course of action in a bull market is to buy into weakness. And so that’s our plan, since the third and most profitable phase of the bull market may be just around the corner.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.