Stocks Slump as the Trump Rally Loses Air

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U.S. equities moves lower in rare fashion on Thursday, pushing large-cap stocks down to test levels not seen since late December amid a bid in safe haven assets and weakness in the U.S. dollar following a contentious press conference from president-elect Donald Trump on Wednesday.

In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.3%, and the Russell 2000 lost 0.9%. Treasury bonds were stronger, the dollar was weaker, gold gained 0.3%, and oil gained 1.5% despite the report of bearish inventory accumulations earlier in the week.

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Telecom stocks led the way with a 0.6% gain while REITs gained 0.4%, both boosted by yield relief as long-term interest rates drifted lower. Financials and energy stocks were the laggards down 0.5% and 0.4%, respectively.

The big story of the day was the 18.4% drop in Fiat Chrysler Automobiles NV (NYSE:FCAU) after the EPA issued a notice of violation to the company for alleged violations of the Clean Air Act involving around 104,000 vehicles. Specifically, government officials accuse the company of installed engine-management software that increases emissions of nitrogen oxides in certain diesel versions of the Grand Cherokee and Ram 1500 models.

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Although the EPA didn’t label them “defat devices” — the use of which resulted in a $4.3 billion settlement with VW — it claimed to have found eight undisclosed pieces of software that can alter how a vehicle emits air pollution. The company says it will fight the charges.

On the upside, Century Aluminum Co (NASDAQ:CENX) gained 15.3% on reports the Obama administration is expected to lodge a formal complaint with the WTO over alleged state subsidies to the Chinese aluminum industry that would result in higher U.S. tariffs on imports of the metal.

Unfortunately, the good news didn’t carry over to the rest of the metals stocks with steelmakers getting hit hard. AK Steel Holding Corporation (NYSE:AKS) fell 10.4%, United States Steel Corporation (NYSE:X) fell 6.8% and Steel Dynamics, Inc. (NASDAQ:STLD) fell 3.6% after a downgrade on the sector by analysts at Credit Suisse citing supply side concerns.

A number of semiconductor stocks were hit as well, with Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) down 2.9% and Skyworks Solutions Inc (NASDAQ:SWKS) down 2.1%. TSM guided down first-quarter revenue while SWKS was hit by a downgrade by Goldman Sachs analysts.

On the economic front, a number of Federal Reserve officials were out making comments but no major new ground was broken. Chicago Fed president Charles Evans said the expectation of three quarter-point hikes this year was “plausible” given economic growth and inflation forecasts.

Technically, the market continues to look vulnerable here as breadth narrows. In fact, “smart money” traders are increasingly getting cold feet. Consider that large-cap options traders are betting on a decline to such an extent that over the past six years, stocks moved higher over the next month just 33% of the time.

Jason Goepfert at SentimenTrader notes his “Smart Money Confidence” index has dropped below 20% for the first time since last summer, one of the few times in the last 17 years confidence in this group has fallen this low. In the past, almost every prior instance resulted in stocks moving lower with “substantial downside” according to Goepfert.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/stock-market-today-nyse-dow-jones-industrial-average-investing-news-nasdaq-russell-2000/.

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