U.S. stocks hit the skids Wednesday following a weak earnings forecast by Wal-Mart Stores, Inc. (WMT). The mega retailer expects earnings to decline 6% to 12% next year due to its pledge to raise wages and investments in e-commerce. Shares fell more than 10% on the news.
Stocks may struggle again today since Netflix, Inc. (NFLX) reported quarterly results after Wednesday’s close that failed to meet earnings and revenue forecasts. The number of subscribers added also fell short of the company’s projections, and shares fell in after-hours trading.
Eight of the S&P 500’s 10 sectors — all but energy and materials — closed lower Wednesday. Consumer staples led the way down, falling 1.1%, followed by consumer discretionary, which lost 1%.
Investors flocked to the safety of U.S. Treasuries. The yield on the benchmark 10-year note fell below 2% for the first time in almost two weeks.
Gold futures rose for the fourth session, closing up 1.2% at $1,180.10 an ounce. Crude oil for November delivery settled at $46.64 a barrel. Weekly oil inventories will be released today and analysts expect an increase of 2.6 million barrels last week.
The U.S. dollar fell nearly 1% against a basket of currencies to its lowest since late June. This was attributed to lower U.S. retail sales and weaker-than-expected inflation data.
At Wednesday’s close, the Dow Jones Industrial Average fell 157 points to 16,925, the S&P 500 lost 9 points at 1,994, the Nasdaq was down 14 points at 4,783, and the Russell 2000 was off 11 points at 1,137.
The NYSE Composite’s primary market traded 887 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 1.5-to-1, and on the Nasdaq, decliners led by 1.7-to-1.
The small-cap iShares Russell 2000 Index (ETF) (IWM) failed at two crucial support lines. It closed under the important inflection point at $114.48 and the 50-day moving average at $115.08. This confirms that the divergence referred to in the previous Daily Market Outlook is real and not confined to the Dow indices.
IWM also failed to successfully attack the mid-September closing high at $117.34, reaching just $115.74 this month, thus reinforcing the importance of the intermediate resistance line. MACD is overbought, but downside volume is average, which is a positive.
IWM and SPDR S&P MidCap 400 ETF (MDY) were co-leaders in the three-year-plus advance. Now they appear to be leading the broader market to a test of the August lows.
Like IWM, MDY closed below its 50-day moving average Wednesday and MACD is overbought. Volume is slightly below average, and that’s the sole positive indicator.
Conclusion
With a Dow divergence, weakness in former upside leaders and strength in defensive investments, I remain skeptical of the Aug. 24-25 reversals. In a stock market that is volatile and weak, it is best to either stand aside or sell. Anything else will contribute to sleepless nights.
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.
