Sellers were out in force on Wall Street on Wednesday, pushing small-cap stocks down to their worst one-day loss in three weeks.
There was no specific catalyst for the decline, just a nagging feeling of concern after Tuesday’s terror attacks in Brussels and the realization that U.S. equities were overextended after the rip-roaring rally out of the Feb 11 low.
In the end, the Dow Jones Industrial Average drifted 0.5%, the S&P 500 lost 0.6%, the Nasdaq Composite was off 1.1% and the Russell 2000 ended the day with a 2% loss.
Treasury bonds rallied, the dollar strengthened, gold lost 2.4% and crude oil fell 4% to close at $39.81 a barrel on headwinds from a lack of progress toward an OPEC/Russia production freeze deal amid selling inventory levels. According to the EIA, crude oil stockpiles jumped 9.4 million barrels to a new record high — well ahead of the 3.1 million barrels expected.
As a result, energy stocks led the decliners with a 2.1% fall. Nike Inc (NYSE:NKE) dropped 3.8% after reporting weak fourth-quarter revenues and issuing disappointing fiscal 2017 earnings guidance. Defensive utility and consumer staple stocks led the way, with the former posting a 0.7% rise. Yum! Brands, Inc. (NYSE:YUM) gained 2% after the Wall Street Journal reported the company is considering a sale of 20% of its China unit for $10 billion.
St. Louis Fed President James Bullard made the case for the April rate hike after commenting that inflation is likely to soon overshoot their target. He added that the unemployment rate, currently at an eight-year low of 4.9%, would likely fall to 4.5% later this year.
Bullard’s comments, following other hawkish chatter from Fed officials this week, has boosted the U.S. dollar to its best four-day rally since December — which, in turn, has slammed precious metals hard on fears the Fed could tighten monetary policy more rapidly than the market expects.
All of this comes as the Dow Jones Industrial Average contends with an epic technical resistance pattern near the 18,000 level that’s been in play since 2014. Moreover, shares are being turned away by a downtrend line that is traced back to the market high set last May.
As a result, the New York Stock Exchange Composite has flashed its first parabolic stop-and-reverse sell signal since February, suggesting lower prices lie ahead as indicators like market breadth — or the percentage of stocks participating to the upside — narrows in a way not seen since November.
In response, I have recommended by Edge subscribers move to cash while Edge Pro subscribers recently trimmed their Amazon.com, Inc. (NASDAQ:AMZN) $560 April puts for a gain of more than 50%.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
