Stocks fell Tuesday ahead of the results of the Federal Reserve’s two-day meeting, which concludes today. Investors are fearful of an end to the central bank’s easy money policy.
Specifically, investors will be focused on the inclusion or exclusion of the word “patient,” which has been the hallmark of prior policy. Its exclusion could mean the Fed will embark on a series of rate hikes beginning as early as June. But economists don’t expect the Fed to be specific as to the exact date for a change in interest rate policy.
Technology stocks bucked the general market decline with the tech-heavy Nasdaq Composite gaining 0.2%. The biotech sector was also strong with the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) rising 0.6% to a new all-time high.
Crude oil hit a six-year low, closing at $43.46 a barrel. Precious metals also sank with the April gold contract falling to a four-month low, closing down 0.4% at $1,148.70 an ounce.
The U.S. dollar fell against the euro for the second consecutive session. The euro closed at $1.059, up from $1.057 on Monday.
There was just one announcement pertaining to economic data: February housing starts fell 17% from January. The decline was attributed to bad weather throughout the Northeast and Midwest.
At Tuesday’s close, the Dow Jones Industrial Average fell 128 points to 17,849, the S&P 500 lost 7 points at 2,074, the Nasdaq gained 8 points at 4,937, and the Russell 2000 was up 2 points at 1,242.
The NYSE’s primary exchange traded approximately 710 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners slightly outpaced advancers, but on the Nasdaq, advancers ended slightly ahead of decliners.
Small-cap stocks, as represented by the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM), led again on Tuesday.
IWM topped at exactly the same high made on March 2 at $123.78. But this time the ETF also flashed a MACD buy signal, putting the ball strongly in the bulls’ court. They now have grounds to anticipate another new high.
Conclusion
The run-up in the U.S. dollar has put a dramatic halt to any expectation for a breakout in the big caps. With demand for U.S. products from our biggest trading partners — Canada, Mexico, Europe and China — diminishing, investors have turned to companies that sell primarily to domestic markets. This means that small- and mid-cap stocks are in vogue and will likely remain that way for the balance of the year.
Technology and biotech stocks should continue to lead the way for 2015 and 2016, no matter what the Fed’s policy.
Our chief trading partner, Canada, which accounted for more than 16% of our trade in 2013, is also a prime target for longer-term investments. The Canadian dollar is at a six-year low, and while dependent on natural resources like precious metals and crude oil, the country has a rich history of bouncing back from economic difficulties.
The Trade of the Day features a Canadian oil producer that looks to be nearing a bottom and should benefit from a rebound in energy prices and the Canadian dollar.
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.
