The U.S. dollar rose to a nearly 12-year high against the euro on Tuesday, sending U.S. stocks into a low-volume tailspin. The Dow industrials and S&P 500 registered their biggest daily declines since early January, down 1.9% and 1.7%, respectively. This put both major indices in the red for 2015.
Stocks appeared to fall for two main reasons. First, a rising dollar against the euro and other major trading partners’ currencies makes U.S. goods more expensive, which threatens economic growth. Second, the possibility of a rate hike by the Federal Reserve has a negative impact on borrowing and, thus, economic growth.
The greenback’s continued strength caused S&P Capital IQ to revise 2015 earnings growth estimates to 1.1%, down from 9.8% on Dec. 1. Q1 growth estimates stand at -2.6% and Q2 at -1.8%.
Barnes & Noble, Inc. (NYSE:BKS) fell 10.1% as fiscal Q3 earnings missed the mark. American Airlines Group Inc (NASDAQ:AAL) lost 2.5% when the company issued weak February traffic results and guidance. Urban Outfitters, Inc. (NASDAQ:URBN) rose 11.5% after topping analysts’ earnings estimates.
Gold futures fell 0.5% to $1,169.10 an ounce. Crude oil lost 3.4% at $48.29 a barrel. The yield on the 10-year Treasury bond fell to 2.13% from 2.19% on Monday.
At Tuesday’s close, the Dow Jones Industrial Average fell 333 points to 17,663, the S&P 500 lost 35 points at 2,044, the Nasdaq was down 83 points at 4,860, and the Russell 2000 fell 15 points to 1,208.
The NYSE’s primary market traded 850 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 2.7-to-1, and on the Nasdaq, decliners led by 3.1-to-1.
The euro is in free-fall against the U.S. dollar, illustrated by the Guggenheim CurrencyShares Euro Trust (NYSEARCA:FXE). Until December, the decline was moderated by the 50-day moving average. But as the dollar’s strength accelerated, a temporary support line at $110 gave way early this month.
Note the increase in downside volume (red bars) that shows an avalanche of sellers. This is an exponential break, and no one can say exactly where it will end.
The failure of the S&P 500 to hold at the support zone of 2,064 to 2,093 and Tuesday’s break through the 50-day moving average at 2,061 is a serious threat to the intermediate trend.
The next support is the October high at 2,019, and then the trend-changing inflection point at 2,001, the 200-day moving average.
Although the bull is still on the field, he’s facing some stiff resistance. In his favor is a lack of panic on the part of major institutional investors. We’ve had the 200-day moving average of the S&P 500 penetrated several times in this bull market, providing buying opportunities when they occurred.
It is time to wait, mark the stocks you want to own and enter good ’til cancelled (GTC) orders at the price you want to pay. Just be sure that your prices are at least 10% below Tuesday’s close. Bargains should be offered to the patient and courageous few who are willing to invest at their price level.
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.