Crises in Ukraine and Gaza tripped the bull Thursday, as the S&P 500 fell more than 1% for the first time since April 10, the longest stretch without a 1% hit since 1995. Gold and U.S. Treasury bonds became the investment of choice as geopolitical concerns overcame the markets.
Gold futures rose 1.3% to $1,316.70 an ounce, and the 10-year note fell to 2.48%, down from 2.54% on Wednesday.
A pending change in the Federal Reserve’s monetary policy caused many investors to take a cautious stance, even as the Dow industrials and transports just confirmed a new high on Wednesday. Prior confirmations this year have led to immediate slight corrections, and the feeling on the NYSE floor was that buyers are still willing to make substantial commitments at what they consider to be the “right price.”
Factory activity in the mid-Atlantic region in July rose to its highest reading in over three years. Jobless claims fell to 302,000 versus an expected 311,000. Housing starts dropped to their slowest pace in nine months in June, and construction levels for new single-family homes are at the lowest level since September. The Philly Fed’s Business Outlook Survey for July increased to 23.9 from 17.8, while analysts had anticipated a decline.
At Thursday’s close, the Dow Jones Industrial Average fell 161 points to 16,977, the S&P 500 was off 23 points at 1,958, and the Nasdaq fell 63 points to 4,363. The NYSE traded 3.4 billion shares, and the Nasdaq crossed 2.1 billion. On both major exchanges, decliners outpaced advancers by more than 4.1-to-1.
The CBOE Volatility Index (VIX), a calculation of the prices investors are willing to pay for options used to protect against a fall in the S&P 500, jumped 32.2% to 14.54. However, the “fear index” is still well below its average price over the past five years, which is closer to 18. Other recent crises have driven it above 20.
As noted above, the S&P 500 fell more than 1% Thursday — its biggest decline in months. But the technical damage was limited to just the 20-day moving average, a minor violation that has occurred many times this year.
More serious support exists at the top of the support zone of 1,925 to 1,950, and the intermediate trendline and 50-day moving average at 1,935. If these give way, I look for a full 50% Fibonacci retracement to 1,925 or even lower.
U.S. stocks have held well under a barrage of bad news. But Thursday’s combination of an airliner shot down over Ukraine and the ground war in Gaza was just too much for buyers to absorb.
The S&P 500’s July 3 closing high of 1,985.44 is a major resistance number, and the failure this week to exceed it could lead to a double-top. But Thursday’s decline failed to draw increased volume. Thus, the July price action is still bullish.
The key support numbers are outlined on the chart of the S&P 500. Unless they are broken, any pullback, especially in the small- and mid-cap sectors of technology and biotech, should be used as bargain-hunting opportunities. However, those who wish to hedge should take a small position in the Trade of the Day, SPDR Gold Shares (GLD), until the dust settles.
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.