Stocks closed slightly lower to unchanged on Wednesday despite uplifting comments from Federal Reserve Chair Janet Yellen. It was obvious from the Fed’s statement that they have not decided when to begin raising interest rates, but the minutes of the Jan 27-28 policy meeting showed much discussion of the issue.
Utility stocks were higher due to the fact that they are a bond substitute and the Fed’s reluctance to raise rates. But financial stocks lost since they tend to do better when rates are higher. The Fed’s inaction and a general lack of earnings and international news contributed to volume falling to its second lowest level of the year.
A Greek spokesman said that talks with the EU were “progressing,” and a new deal on financing should be finalized by week’s end.
Housing starts dropped 2% in January, which was slightly more than expected. Producer prices fell to a seasonally adjusted 0.8% in January. Core PPI declined 0.1%, while the consensus had expected an increase of 0.1%.
Energy stocks fell 1.3% on a 2.6% decline in the price of oil. Gold futures lost 0.7% to close at $1,199.70 an ounce.
At Wednesday’s close, the Dow Jones Industrial Average fell 18 points to 18,030, the S&P 500 closed unchanged at 2,100, the Nasdaq gained 7 points at 4,906, and the Russell 2000 rose 3 points to 1,228.
The NYSE’s primary market traded 716 million shares with total volume of 3.4 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.2-to-1, and on the Nasdaq, advancers led by 1.1-to-1.
The Nasdaq jumped to a 13-year high, but volume and breadth were again lacking. The upper Bollinger Band at 4,952.77 is now within reach, and the upper resistance line of the bull channel has intersected it. MACD is somewhat overbought.
Like the Nasdaq, the Russell 2000 is somewhat overbought, but it may go higher. Its Bollinger Band at 1,133.50 is slightly less overbought than the Nasdaq’s, and its MACD indicator is also less extended.
The Russell 2000 made a new all-time high Wednesday, but just barely and with a last-minute rush to buy but on low volume.
Conclusion
The near-term extent of the current rally is still in doubt. While the small and mid caps are performing well, the big caps of the Dow, S&P 500 and NYSE Composite are lagging. It is hard to imagine that momentum will pick up with such puny volume and breadth.
The S&P 500 broke to a new high by less than 5 points on Tuesday and lost under a point Wednesday — hardly the record-setting volume we’d expect to go with new highs. So, what is the cause of this lukewarm response?
While dividends and buybacks are at record levels — a combined total of $900 billion in 2014 — new buyers are not being attracted to stocks.
It would be better if management reinvested capital in future growth opportunities. Cash distributions and share repurchases may be initially attractive to investors, but they are a limited growth strategy.
A CNBC host asked Raymond James’ Jeff Saut: “Which companies — that you own or are thinking about owning — are doing a great job of satisfying Wall Street with cash distribution, but also investing for the future?” Saut pointed to Apple Inc. (NASDAQ:AAPL). As an example, he cited that the company spent tons of money developing and perfecting iTunes, which now has 600 million embedded users.
Apple is a company that has a vision and knows how to reinvest its capital for future success, not just the immediate satisfaction of stockholders.
And that has helped blast shares to new record highs in price and volume. American business should wake up and take a lesson from this premier U.S. growth company.
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.
