On Tuesday, big-cap stocks fell for the third consecutive session as investors chose safety to risk as a score of pending earnings and economic reports influenced their increased level of caution.
The Dow Jones Industrial Average slid 0.5% and the S&P 500 lost 0.1%, but the Nasdaq rose 0.02%, and the Russell 2000 gained 0.7%. And for the month the Dow gained 0.5%, the S&P 500 rose 1.8%, the Nasdaq closed 4.3% higher, and the Russell 2000 gained 0.3%.
Prior to a meeting with President Donald Trump and the representatives of the pharmaceutical industry, drug stocks floundered. However, a broad rally in the group followed the president’s assurances of reduced regulations, lower taxes and a sped-up drug approval process. Biotechnology stocks highlighted the advance with the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) jumping 2.8%.
Exxon Mobil Corporation (NYSE:XOM) fell 1.1% after the company’s Q4 earnings not only missed estimates but its full year 2016 profit was the lowest in 20 years. United Parcel Service, Inc. (NYSE:UPS) fell 6.8% after management pronounced a lower-than-expected outlook for its 2017 earnings. And Under Armour Inc (NYSE:UAA) fell 26% after a worse-than-expected fall in profits and a lower sales forecast for this year.
However a positive earnings increase was reported after the close by Apple Inc. (NASDAQ:AAPL). The major technology star reported Q1 2017 earnings of $3.36 on sales of $78.4 billion vs. Zacks consensus expectations of $3.22 on sales of $76.93 billion.
At the close, the Dow Jones Industrial Average fell 107 points, closing at 19,864, the S&P 500 lost 2 points at 2,279, the Nasdaq gained a point at 5,615 and the Russell 2000 closed at 1,362 for a gain of 9 points. The NYSE’s primary exchange traded 1.1 billion shares with total volume of over 4 billion shares, and the Nasdaq crossed over 2 billion shares. On the Big Board, advancers outpaced decliners by 1.7-to-1, and on the Nasdaq, advancers led by 1.6-to-1. Blocks on the NYSE fell to 6,786 from 6,838 on Monday.
The S&P 500’s gain for January confirms that the bull is alive and well for two technical results: First, my 17-month moving average last flashed a “Buy” at the end of March 2016 and has stayed above the line every month since. And Second, the “January Barometer,” which states “as the S&P 500 goes in January, so goes the year,” is widely accepted by technicians. Thus the gain of 40 points in January predicts a continuation of the advance through this year.
The Barometer was discovered in 1972 by Yale Hirsch, of The Stock Trader’s Almanac. According to the Almanac, this indicator “has only eight significant errors in 66 years” for an astounding 87.9% accuracy ratio from 1950 through 2015. Since the Almanac was printed before the end of last year, it did not include 2016. And if it had, it was likely that The Federal Reserve’s easy money policy staved off a decline in 2016, as it had in 2010 and 2014 with its QE2 and QE3 initiatives.
Notation: Flat years with gains/losses of less than 5% are usually not included. If the eight flat years are included, the accuracy is still a remarkable 75.8% through 2015.
A late-afternoon rally with heavy buying on the close kept the 500 from breaking its December high at 2,277. Higher distribution occurred earlier in the session, and so the late round of buying was significant in that it appeared to be from block buyers.
Conclusion: The bull is still in the high meadows, but he did stumble yesterday. Fortunately a late recovery led by the pharmaceuticals saved him from falling. He appears exhausted by the December run-up and thus subject to a rest, but as long as the line at 2,277 holds, the 5% to 10% pullback forecast by Jeff Saut (Raymond James Chief Strategist) may not occur until another new high produces further exhaustion. Bulls love good Apples, and today we will see if yesterday’s late offering provides the energy needed to crack last Thursday’s high at about 2,300.
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.
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