The Obama administration introduced its new regulatory program for the big financial firms yesterday. Apparently investors didn’t like what they saw and sold stocks for the third-consecutive day.
In the president’s plan, the Federal Reserve, which has traditionally been independent of political influence, would receive new regulatory powers over financial firms.
Bank stocks fell on the regulatory plan news, and Standard & Poor’s lowered its ratings and revised its outlook on 22 banks. Wells Fargo (WFC), Fifth Third Bancorp (FITB), US Bancorp (USB) and BB&T (BBT) were among those that were downgraded.
USB said that they, as well as others, have redeemed the preferred shares issued to the Treasury under the TARP program, but that made little difference and stocks headed lower.
In addition, General Electric (GE) was sharply lower since, under the government’s new plan, it could face some stiff regulation of its GE Capital unit.
Materials and energy stocks again led the market down. Health care stocks were higher, up 2.1%, and consumer staples, discretionary stocks and technology gained fractionally.
At the close, the Dow Jones Industrial Average (DJI) was off 7 points to 8,497, the S&P 500 (SPX) fell a point to 911, and Nasdaq (NASD) gained 12 points to 1,808.
On the NYSE, 1.3 billion shares traded, with decliners ahead by almost 3-to-2. Nasdaq traded 765 million shares, with advancers just slightly ahead of decliners.
July crude oil settled at $71.03, up 56 cents, and the Energy Select Sector SPDR (XLE) fell 83 cents, closing at $50.15. Gold futures were higher yesterday, with the August contract up $3.80 to $936. The PHLX Gold/Silver Index (XAU) fell 79 cents to $139.77.
What the Markets Are Saying
Our internal indicators are telling us that the market is slightly oversold. Since March, this condition has led to a rally, but yesterday the S&P’s intraday low penetrated the 200-day moving average. Its next minor support is at the 50-day moving average, and then the more significant support zone beginning at 880.
We have been mentioning “non-confirmations,” and now there is a new one pointed out by Mark Arbeter of Standard & Poor’s. Mark says that the financial stocks show a non-confirmation of higher highs in the major indices. The Financials Select Sector SPDR (XLF) set a lower high on June 5, and since has been rolling over.
The XLF chart is interesting in that, despite the low volume on the major exchanges, selling volume on the XLF has picked up just in the last three days. Yesterday’s close at $11.61 puts the XLF just a tad above the 50-day moving average, which, if broken, could result in a pretty hefty pullback.
During the last cycle investors may have learned that holding through a bear market is not good strategy.
For every market and every stock there is a time to buy and a time to sell. In other words, “You got to know when to hold ’em, know when to fold ’em.”
And it may be time to offload some of those bank stocks that have been so kind to investors since March.
Today’s Trading Landscape
Earnings to be reported include: Carnival Corp. & PLC (CCL), Discover Financial Services (DFS), J.M. Smucker Co. (SJM), Pier 1 Imports (PIR), Progress Software Corp. (PRGS), Research In Motion (RIMM), Wimm-Bill-Dann Foods OJSC (WBD) and Winnebago Industries (WGO).
Economic reports due: initial jobless claims for the week ended June 13 (the consensus expects +9,000), June Philadelphia Fed business index (the consensus expects -18), May Conference Board’s Leading Economic Index (the consensus expects +1%), DJ-BTMU U.S. Business Barometer for June 6, and June 5 EIA natural gas inventories.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
