U.S. equities were hit with their hardest selloff in weeks, taking large-cap stocks back below their 20-day moving average. Uptrend support from the Feb. 11 low is being tested in a serious way, making a turnaround necessary as soon as possible, else the vitality of the two-month rally get called into question.
In the end, the Dow Jones Industrial Average lost 1.2%, the S&P 500 lost 0.9%, the Nasdaq Composite fell 1.2% and the Russell 2000 finished the day with 1.2% loss. Treasury bonds strengthened on safe haven inflows, the dollar weakened, gold gained 1.3% and crude oil finished 1.5% higher.
Defensive consumer staples stocks led the way with a fractional gain. Facebook Inc (NASDAQ:FB) surged 7.2% on a top- and bottom-line beat with earnings around 22% ahead of expectations on strong ad revenue and user metrics. Tech stocks were the laggards, down 1.4% as a group.
There were three main catalysts for the day’s decline:
The first was a surprise “no stimulus” decision by the Bank of Japan overnight despite headline consumer price inflation falling into negative territory on a year-over-year basis for the first time since 2013. Japan’s Nikkei lost more than 3% and the yen surged.
The second was more pressure on Apple Inc. (NASDAQ:AAPL) as activist investor Carl Icahn told CNBC he had exited his long position after trumpeting back in 2014 that Apple stock was a “no brainer.” This after pushing the company’s debt load from $35 billion to just shy of $80 billion and earning himself hundreds of millions in the process. I discuss the reasons behind the move here.
One-time momentum favorite, hedge fund hotel and single most important stock in the market, is now down nearly 16% from its high two weeks ago, and is down some 29% from the high set last April. Edge Pro subscribers are enjoying a 200%-plus gain in their May $107 AAPL puts first recommended on April 18.
The third catalyst was a surprisingly weak advance reading on Q1 GDP growth, which clocked in at just 0.5% vs. the 0.7% that was expected. This is down from the 1.4% gain in 4Q15 and is the weakest result since the beginning of 2014. Business investment weighed, dropping 5.9% following a 2.1% decline in Q4.
After the close, however, there was a blitz of positive tech-sector earnings. In extended trading, Amazon.com, Inc. (NASDAQ:AMZN) is up 12.2%, Expedia Inc (NASDAQ:EXPE) is up 11%, Baidu Inc (ADR) (NASDAQ:BIDU) is up 5.9%, Pandora Media Inc (NYSE:P) is up 5.4%, and LinkedIn Corp (NYSE:LNKD) is up 3.8%. Apple supplier Skyworks (SWKS) is up 2.6%.
AMZN is the biggie here, reporting a top- and bottom-line beat with earnings of $1.07 per share (vs. 61 cents expected) on revenues of $29.1 billion (vs. $27.9 billion expected). A surge in service sales, up to $8.55 billion from $5.63 billion last year, was a standout, as was an expansion in overall margins. Forward guidance was strong as well, with management looking for Q2 revenues between $28 and $30.5 billion versus the $28.1 billion expected.
Looking ahead, stocks look vulnerable to continue downside pressure as prices have clearly separated from the fundamentals, as shown in the chart above.
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.
