Stocks fell on a broad front Tuesday, but small and mid caps led the way down. While the Dow industrials lost 0.3% and the S&P 500 fell 0.5%, the Nasdaq was hit for 0.6%.
It seemed like the hot days of summer again, as Greece hit the headlines. However, the current problem is more political than economic. Parliament failed to elect a new president, so a general election will be held in January. As David Lebovitz, global market strategist for J.P. Morgan Funds, put it, there isn’t “the same element of contagion that existed when we were talking about the banks and sovereign debt.” However, the Stoxx Europe 600 fell 0.9%.
As for our markets, the year’s best performer, the Dow Jones Utility Average, fell 2.1% but maintained a gain of 28.3% for the year.
The best performer in December, the Russell 2000, lost 0.5%, led lower by the biotech sector, which also had a negative impact on the Nasdaq. The iShares NASDAQ Biotechnology Index ETF (IBB) fell 1.1%.
Some of Monday’s losses were attributed to lagging home prices, up 4.6% in the year ending in October compared to 4.8% in September. The good news is that the overall economy grew at an annual rate of 5% in Q3, the strongest pace in 11 years.
The Conference Board’s Consumer Confidence Index increased to 92.6 in December, but this was below expectations of 94.4.
Crude oil futures rose 1% to $54.12 a barrel. Gold futures increased 1.6% to $1,200.20 an ounce, and the 10-year Treasury note’s yield fell to 2.19% from 2.21% on Monday.
At Tuesday’s close, the Dow Jones Industrial Average was off 55 points at 17,983, the S&P 500 fell 10 points to 2,080, the Nasdaq lost 29 points at 4,777, and the Russell 2000 was down 6 points at 1,213.
Volume was low again with the primary market of the NYSE trading just 525 million shares and total volume of 2.4 billion shares. The Nasdaq crossed 1.3 billion shares. On the Big Board, decliners outpaced advancers by 1.4-to-1, and on the Nasdaq, decliners were ahead by 1.6-to-1.
Tuesday’s low-volume pullback was so similar to the decline following a strong December 2013, that I feel compelled to emphasize it.
While the Dow industrials topped one year ago today, the Russell 2000, as evidenced by the iShares Russell 2000 Index ETF (IWM), rose until Jan. 22. The decline that followed this peak shocked traders and investors alike, and some analysts even predicted that a bear market would follow.
However, after purging the high-multiple winners of 2013, the market — and especially the small caps — quickly rallied, and within the first three weeks of February, regained all that was lost.
By March 4, IWM made a new high at $120.58 before pulling back. It briefly hit a high of $120.97 on a fluke day on July 1, but that quickly led to an adjustment down. That remained the yearly high until Dec. 29, when it attained $121.38.
Conclusion
It is easy to be misled by the chatter of the press. They have no goal but to attract viewers. But by ignoring their constant din and studying what has been, you will be prepared for what might be.
No one knows what the market will do, but being alerted to all possibilities makes you an “out-of-the-box” strategist. So even if you decide to go long early in 2015, you will at least be aware of the potential for trouble and protect yourself with appropriate strategies by utilizing stop-loss orders and various options strategies.
Best wishes for a very profitable new year
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.
