Well, that was quick.
If traders needed a reminder what real stock-market volatility looked like, or how quickly two-plus weeks of grinding gains can be evaporated, Friday was the perfect day.
When the dust had cleared, the Dow Jones Industrial Average plunged 166 points to 11,824, the Nasdaq fell 2.5% to 2687, and the S&P 500 was off 1.8% to 1276. The S&P 500 found itself closing at a level where it had first ended on Jan. 5, and has now essentially cut in half its gain for the month and year.
At least the Nasdaq had a specific stimulus — a weak earnings report by Amazon.com (NASDAQ:AMZN) late Thursday, which included a miss on fourth-quarter revenue and drastically lower forecast for first-quarter operating profit, put traders on alert that it could be a rough session for tech stocks.
Still, to the general investor there was reason for optimism: the Nasdaq had returned to its old outperforming ways for much of this week, so a day off wasn’t necessarily cause for alarm for the broader market. Plus, both the Dow and S&P 500 were flirting with big, round numbers to attain (12,000 and 1300) that seemed within reach — especially on a Friday, with nothing but recent bullish momentum at play.
In addition, you could almost hear the consensus willingness of investors to paint a particularly rosy picture on the fourth-quarter GDP report, which missed most expectations, but did show a 4.4% growth in consumer spending, regardless of whether this particular gain was Fed-induced.
Ultimately, however, Friday’s motto seemed to be “Live by momentum, die by momentum.” Technicians pointed to the S&P’s failure to hold 1300 in the early part of the session as the dropping icicle ahead of the resulting avalanche.
It wasn’t really a question of which stocks or sectors dropped, but how bad was it. OK, to be fair, Dow components DuPont (NYSE:DD) and Procter & Gamble (NYSE:PG) did each gain 2 cents — and that’s pretty much the good news.
Smaller stocks were smacked down — the Russell 2000 fell 2.5%, while the two stars of Thursday, automobiles and airlines were among the biggest losers on Friday. Shares of Ford (NYSE:F) were down more than 13% after the company widely missed quarterly profit expectations, even though revenue beat estimates.
Commodities bounced back, with oil erasing much of the week’s losses and settling back above $89 a barrel. Gold and silver again showed some life, but are still in the lower half of the price range they’ve in which they’ve been treading this month.
With the market closing Friday at a level touched during 2011’s first day of trading, the bulls will have to show some life next week — or else cow to a growing perception that earnings reports haven’t justified the recent four-month rally in stocks.
