Stocks Threaten Breakdown Amid Comey Turmoil

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U.S. equities are at risk of breaking down out of one of the tightest trading ranges in history, moving lower on Thursday as large-cap stocks tested their 50-day moving average for the first time since mid-April. Although the bulls were able to push the indices off of their worst levels, the tape felt heavy — a rarity on Wall Street in recent months.

The catalyst is the political whirlwind in Washington following the ouster of FBI Director James Comey by President Trump, whipping up outrage from Democrats (who, admittedly, blame Comey for Clinton’s loss last November) and threatening the White House’s legislative agenda. With the well poisoned, it’s hard to see bipartisan cooperation on tough issues like healthcare and tax reform.

In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.2% and the Russell 2000 lost 0.7%. Treasury bonds were stronger, the dollar was mixed, gold gained 0.4% and oil gained 1.1% to build on Wednesday’s 3% rise.

Breadth was negative — with 1.6 decliner for every advancing issue on the NYSE — with volume in-line with recent trends. Consumer staples led the way with a 0.1% gain while consumer discretionary stocks were the laggards, down 0.6%.

Macy’s Inc (NYSE:M) was slammed in a 17% loss on an earnings miss on a worse-than-expected 5.2% drop in same-store sales and larger-than-expected 1% margin contraction vs. last year. Recent IPO sweetheart Snap Inc (NYSE:SNAP) — “But Spectacles are so cool!” — lost a nauseating 21.5% after actual quarterly results missed expectations in a classic case of hype smashing headlong into dismal reality. Daily average users and ad revenues missed estimates.

And continuing the carnage amongst the retailers ahead of Friday’s eagerly awaited retail sales report, Kohl’s Corporation (NYSE:KSS) fell 7.7% on a deeper-than-expected 2.7% same-store sales decline while Nordstrom, Inc. (NYSE:JWN) fell 5.5% in extended trading — following a 7.6% loss in the daytime session — on weaker-than-expected revenues and a 0.8% drop in same-store sales.

On the upside, Lululemon Athletica inc. (NASDAQ:LULU) gained 2.8% on reports the yoga pants maker is receiving takeover interest. Whole Foods Market, Inc. (NASDAQ:WFM) gained 2.2% on in-line results, a dividend hike and a new $1.3 billion buyback authorization.

On the economic front, there is a whiff of stagflation in the air following a weak 0.7% first-quarter GDP reading, a continuation of weak “hard data” moving into Q2, and now, April producer price inflation increased at a quicker-than-expected 2.5% annual rate (versus the 2.2% expected). This will increase pressure on the Federal Reserve to raise interest rates again in June.

And finally, on a technical basis, breadth continues to narrow as the number of new lows relative to new highs — shown in the upper pane in the chart above — increases.

While the major stock averages holdfast near recent highs, the ratio of new highs to new lows has dropped below 80% — down from a high of 95% in late February.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/stocks-threaten-breakdown-on-comey-turmoil/.

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