Following a four-day drop of 4.4%, a bounce in stocks was not out of the question on Tuesday. Since that didn’t take place after a final-hour swoon, investors are left to wonder – again — when the downside momentum will trail off.
At the session’s end, the Dow Jones Industrial Average slipped 19 points to 12,071, the Nasdaq slipped 1 point to 2702, and the S&P 500 fell a point to 1285.
The good news, for bulls, is that in a market that has seen equities drop about 6% since hitting 2011 highs in late April, flat is the new up – but unfortunately a complete reversal of the dynamic enjoyed by bulls during the market’s eight-month runup beginning in late August 2010.
There also were some welcome signs of relief in the nearly six-week deflation in global assets – crude oil finished a few pennies higher at $99.09 a barrel, while gold and silver hung within 1% of their opening prices.
Bonds, too, finished with just a slight selloff, with the 10-year Treasury note yield inching up to 3.01%.
On the other hand, what was looking like at least a modest bounce by stocks couldn’t sustain itself, and wouldn’t you know, what ended up being stocks’ fifth-straight losing day seems to be tied directly to comments from everyone’s favorite punching bag, Federal Reserve Chairman Ben Bernanke, at a conference in Atlanta.
While Bernanke kept hope alive with a forecast that the economy would pick up in the second half of the year, he also brought official confirmation of a sort to what a lot of us had already expected, especially after last Friday’s jobs data: the economy has been sputtering more than expected, and there has been a “loss of momentum” in the labor market in recent weeks.
In other words, a signal for investors that the market will need tangible proof of a healthy economy before anything close to a sustainable rally can take place. Traders, you’ve had your positive momentum (for now).
As for other factors needed to spark a sustainable rally, we’ve often pointed in this space to bank stocks, and note that Tuesday brought another 2011 closing low in the Financial Select Sector SPDR (NYSE:XLF) exchange-traded fund, which is now at its lowest level in six months.
And while we’re at it, why not mention the 2011 closing low in homebuilder stocks hit Tuesday, as measured by the iShares Dow Jones U.S. Home Construction (NYSE:ITB) ETF.
With those sectors still fading, it’s difficult to find much upside in the broader market, which is now up just 2% for the year.
