On Wednesday, comments from Federal Reserve Chief Janet Yellen that stocks are generally overpriced sent the market into a tailspin. However, in the last hour, bargain hunters jumped in, recovering about half of the decline. The Dow industrials and S&P 500 lost 0.5%, and the Nasdaq fell 0.4%, although small caps closed higher.
Recent economic releases and one of the weakest quarterly earnings seasons in years appeared to back Yellen’s comments. Stocks were already down when she spoke and sold off sharply after. She said that stock market valuations appear “quite high,” driving the Dow industrials down 147 points before the final rebound. Her comments were generally interpreted as a warning that the Fed would be raising interest rates later this year.
The telecom sector led all groups in losses, down 1%, with technology placing second worst, down 0.9%. Both sectors are considered to be countercyclical. Biotechnology stocks rose with the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) gaining 0.8%.
FactSet reported that with 417 of the S&P’s 500 companies reporting Q1 earnings, they are on track to grow at just 0.2%. However, The Wall Street Journal pointed out that as recently as the end of March the quarterly estimate was for a decline of 4.7%.
Mylan NV (NASDAQ:MYL) missed its revenue forecast and shares fell 2.5%.
Energy stocks suffered a round of profit-taking despite an advance in crude oil prices. Oil was up 0.9% to $60.93 a barrel as stockpiles declined for the first time in 16 weeks.
Gold fell 0.2% to settle at $1,190.30 an ounce. And the 10-year Treasury note’s yield rose to 2.25%.
At Wednesday’s close, the Dow Jones Industrial Average fell 86 points to 17,842, the S&P 500 fell 9 points to 2,080, and the Nasdaq lost 20 points at 4,920, but the Russell 2000 gained 4 points at 1,219.
The NYSE traded total volume of 3.8 billion shares, and the Nasdaq crossed 2.1 billion shares. On the Big Board, decliners outpaced advancers by 2-to-1, and on the Nasdaq, decliners led by a slight margin.
The most watched index, the S&P 500, broke its intermediate support line and 50-day moving average. This break establishes the inability of the S&P 500 to follow through with a breakout to new highs just three sessions ago. Instead the twin highs at 2,117 look like formidable barriers, and the momentum shift has turned from positive to negative.
On the other hand, small caps, as represented by the Russell 2000, appear to have bucked the negative comments from Yellen. By closing higher in an obviously oversold condition, momentum appears to have shifted from negative to positive, for a very unusual day of stock movements.
Conclusion
Admittedly, the concluding chapter has yet to be written in this mystery of the market. But for those who want to “see the soldiers lead and the generals stay at the HQ,” Wednesday was a banner day.
But let’s wait for further developments before we have the final victory parade since what occurred Wednesday could be merely a feint to draw us into a major commitment that could end in defeat. Therefore, the flags will remain furled as we await the final decisions of Mr. Market.
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.
