Fresh off a first day of 2011 trading that extended the four-month rally in stocks, investors on Tuesday seemed more circumspect about where to place their bets.
The market initially opened higher, with the Dow Jones Industrial Average on its way to a modest, but steady 30-point gain. By the end of the day, however, stocks made a steady descent, only to turn around by the end of the session and post a decidedly mixed day. While the Dow added 20 more points to its 2011 gains, to 11,691, the Nasdaq and S&P 500 finished slightly lower.
More than two-thirds of the Dow’s components finished higher, with the index carried by strong days from Alcoa (NYSE:AA), Disney (NYSE:DIS) and Hewlett-Packard (NYSE:HPQ).
The disparate nature of those three companies highlighted a day that had little sustenance for trend-watchers. While one could make the case that consumer-based stocks had a mostly positive day due to sentiment “out there” related to an improving economy, the momentum in commodities took a decided breather.
Perhaps the truer nature of the day was in the advance/decline ratio, which, at the New York Stock Exchange, saw 62% of stocks sell off.
Ultimately, then, investors are left after Tuesday’s close having to wonder how much fuel is left over from the 2010 rally that saw half its full-year gains realized in the final month.
Both sides in the bull/bear camps had evidence supporting their views. For bulls, the very nature of the market’s late-session comeback on Tuesday showed the resilience of stocks is very much present. The week’s economic data has been modest, but positive, while auto sales were mostly within expectations.
What’s more, crude oil sold off again, at one point touching its lowest level in two weeks, easing fears that higher oil and gas prices could stall whatever sort of economic recovery we’re apparently having.
For bears, a broad selloff in commodities suggests the speculative momentum, at least in that sector, is nearing an end. In addition, the minutes released from the most recent Fed meeting highlighted a laundry list of headwinds that market-doubters continue to believe will eventually affect the runup in stocks: continued high unemployment, the interest in consumers of reducing debt, and the huge budgetary gaps of state and municipal governments.
An interesting selloff also was seen in small-caps and mid-caps alike. Considering their outperformance in 2010, as well as their water-carrying for the famed January Effect, an eye on smaller-stock performance this week is warranted.
