U.S. equities finished lower on Tuesday amid a heavy flow of Federal Reserve-related headlines and disappointment that the Senate GOP leadership is delaying a vote on their healthcare reform bill until after the Independence Day holiday recess.
In the end, the Dow Jones Industrial Average lost 0.4%, the S&P 500 lost 0.8%, the Nasdaq Composite lost 1.6% amid tech-sector weakness and the Russell 2000 lost 0.9%. Treasury bonds fell pushing up long-term yields, the dollar came under pressure, gold was little changed and oil gained 2% before sliding after hours on a surprise inventory build.
Breadth was negative with 1.9 decliners for every advancer, while volume was 86.8% of the NYSE’s 30-day average. Financials led the way on net interest margin hopes, up 0.5%. Tech stocks were the laggards, down 1.7%.
There was some good news for retail stocks today. J C Penney Company Inc (NYSE:JCP) gained 3.2% on an upgrade from Gordon Haskett noting management efforts to improve its merchandise. Darden Restaurants, Inc. (NYSE:DRI) gained 3% on better-than-expected results with revenues 3% ahead of estimates.
Kohl’s Corporation (NYSE:KSS) gained 2.4% on management changes. And Tiffany & Co. (NYSE:TIF) gained 1.5% on positive comments from Bank of America Merrill Lynch, including a faster pace of innovation.
Sprint Corp (NYSE:S) gained 2.1% on reports the company is in talks with Comcast Corporation (NASDAQ:CMCSA) and Charter Communications, Inc. (NASDAQ:CHTR) about a wireless deal.
On the downside, iRobot Corporation (NASDAQ:IRBT) fell 10.2% on competitive pressures cited by Spruce Point Capital analysts.
Google parent Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) fell 2.5% — losing its 50-day moving average — after the European Union announced a record $2.6 billion fine for violating antitrust rules by giving search result preference to its own products.
Conclusion
The big news of the day was that both Fed chairman Janet Yellen and vice-chairman Stanley Fischer noted extended asset price valuations and financial system leverage. San Francisco Fed president Williams said he was “concerned about the complacency in the market” and that the “stock market still seems to be running very much on fumes.”
Fischer added that “equity P/E ratios are near the top of historical levels” and that it would be “foolish to think all risks [are] eliminated” amid a “notable uptick in risk appetites in asset markets.”
In addition to the Fed, the Bank for International Settlements, the Bank of England, and the European Central Bank have all recently highlighted financial stability concerns from the eerie calm in financial markets.
This is as clear as it gets folks: Amid relatively tame inflation, the Fed is worried market bulls are jeopardizing the economy by pushing the price of stocks too high given relatively modest earnings and economic growth fundamentals. Remember “Don’t fight the Fed?”; the meme used to justify the market melt up following unveiling of QE3 in 2012?
Well, it can now be used to justify caution here as the Fed looks set to continue to tighten the clamps on monetary policy until the stock market cools its heels.
The process is starting, with the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) closing below its 50-day moving average for the first time since December amid a breakdown in popular stocks like Netflix, Inc. (NASDAQ:NFLX). That boosted the ProShares ProShares UltraShort QQQ (ETF) (NYSEARCA:QID) recommended to Edge subscribers to a gain of 3.7%.
Check out Serge Berger’s Trade of the Day for June 28.
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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Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
