U.S. equities continued to oscillate aimlessly near the unchanged line on Tuesday in one of the quietest periods on Wall Street in decades. No major catalysts were in play.
The Dow Jones Industrial Average lost 0.2% while the Nasdaq Composite gained 0.3%. Treasury bonds were unchanged, the dollar was stronger, gold lost 0.9% to continue a recent selloff and oil was lower ahead of inventory data down 1.2%. Breadth was negative, with 1.3 decliners for every advancer on the NYSE. Volume was in-line with recent trends. Consumer discretionary stocks led the way with a 0.5% gain while utilities lost 0.9%.
The complacency is so thick in the air, you could almost cut it with a knife. The CBOE Volatility Index (VIX) — Wall Street’s “fear gauge” — set a record of 12 days under the 11 level. In other words, never before have investors felt this comfortable.
Yet it comes at a time when valuations, as measured by the S&P 500 Shiller P/E ratio, have only been higher heading into the 1929 and 2000 market bubbles; when Q2 GDP growth expectations are already being marked down after a pitiful 0.7% Q1 performance; and earnings expectations are rolling over as the labor market tightens, energy and commodity prices move lower and all that post-election optimism fails to translate into actual spending as evidenced by weak retail sales.
Investors are poised for some disappointment as the second quarter rolls on and these realities start to bite. They got a taste of this after the close when Walt Disney Co (NYSE:DIS) reported mixed results. Earnings of $1.50 beat the $1.45 analysts were expecting. But revenues of $13.3 billion represented a slight miss on a drag from studio entertainment and consumer products (merchandise sales just aren’t what they used to be).
Ongoing headwinds at ESPN — reflective of broad industry pressure as “cord cutting” ramps up — was a particular focus for investors resulting in a 2.6% decline in DIS shares in extended trading. Ad sales at the channel dropped 5% from last year. That’s boosting the May DIS $114 puts recommended to Edge Pro subscribers to a gain of 125% since recommended on May 2.
On a technical basis, the gap up and reversal lower in the overall market on Tuesday is a classic sign of buying exhaustion. Historically, according to SentimenTrader, during periods of low volatility like now that has presaged market weakness over the couple of weeks that followed.
Wall Street looks poised for further weakness, as the futures market trades lower during the overnight session with the Dow off 23 points.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.
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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