U.S. equities drifted lower on Thursday as many of the trade dynamics we’ve seen since the election reversed. Stocks were weaker. Bonds were stronger. The dollar weakened. Gold rose. Interest rates declined.
There was no particular catalyst for the move. Just a nagging sense that many of these trades had become overextended and were vulnerable to profit-taking and short covering. In the end, the Dow Jones Industrial Average lost 0.2%, the S&P 500 lost 0.1%, the Nasdaq Composite bucked the trend to gain 0.2% and the Russell 2000 lost 1.2%.
Gold gained 1.4% helped by ongoing volatility in Chinese currency and inter-bank lending markets as well as the weakness in the U.S. dollar. As a result, I’ve recommended a new position in the Vectors Junior Gold Miners (NYSEARCA:GDXJ) to Edge subscribers as gold stocks look ready to break up and out of a long, painful, multi-month downtrend pattern.
Retailer stocks were hit hard amid disappointing holiday season sales. Macy’s Inc (NYSE:M) fell 13.9% after saying comp-store sales fell 2.7%, worse than the 0.9% decline that was expected. Management highlighted declining traffic, changing customer behavior and weakness in critical categories like handbags and watches. Kohl’s Corporation (NYSE:KSS) fell 19% on a 2.1% drop in holiday comps and a cut to earnings guidance.
Overall, financials led the way down with a 1% decline. Yield-sensitive REITs were the leaders, up 0.5%, thanks to the strength in fixed income. Troubled action-camera maker GoPro Inc (NASDAQ:GPRO) gained 3.7% thanks to a WSJ report that the company will resume sales of its Karma drone next month after being recalled in November due to battery issues.
On the economic front, the ISM services activity index beat expectations for December coming in at 57.2 versus the 56.8 expected. New orders increased to 61.6 from 57.0 in November.
Keep an eye on overnight markets for a continuation of the volatility seen in China’s currency as well as the bloodbath in bitcoin, which had ramped up as Chinese speculators sought a “safe haven” from the chaos amid reports of a capital control clampdown from Beijing.
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