U.S. equities were hit on Thursday, pushing the Dow Jones Industrial Average further away from its 50-day moving average in what is the most significant downtrend since before Election Day. For the first time in five months, the bears are actually dealing some damage to ebullient stock prices.
In the end, the Dow Jones Industrial Average lost 0.7%, the S&P 500 lost 0.7%, the Nasdaq Composite lost 0.5%, and the Russell 2000 lost 1%. Treasury bonds were changed little, the dollar was weaker, gold extended its recent strength rising 0.8% on safe haven inflows and oil did not change much.
Energy stocks led the way down, off 1.8%, with oil services stocks hit the hardest. Defensives and yield-sensitives did best, with real-estate investment trusts down just 0.2%. Tesla Inc (NASDAQ:TSLA) got a lift thanks to CEO Elon Musk teasing a September unveiling of a “Tesla Semi” and a July release of the Model 3 sedan on Twitter.
This puts an end to a tight two-month trading range as the Q1 earnings season kicks off and investors grow concerned about the Trump Administration’s shift in focus from tax reform and healthcare legislation (bogged down by gridlock) to foreign policy, where the White House can exercise power more unilaterally.
The situation in Syria remains at a low boil amid recriminations with Assad’s Russian allies. The standoff with North Korea is heating up, as the Trump Administration puts pressure on China to get Pyongyang under control on reports the despotic nation is preparing another nuclear weapons test. And today, Trump dropped the “MOAB” bomb on ISIS positions in Afghanistan, making good on his campaign pledge to “bomb the **** out of them” using the U.S. military’s largest non-nuclear ordinance.
Bank stocks were hit after JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), and Citigroup Inc (NYSE:C) reported results, reversing an initial surge on better-than-expected earnings and revenues. As investors actually dig into the results, negatives like surging credit card charge-offs, lower mortgage originations and tighter net interest margins.
WFC fell 3.3% despite beating earnings estimates; the source of the fall was provisions and taxes. Revenues missed on softer net interest margins. WFC management reported mortgage applications fell by 23% quarter-over-quarter to just $59 billion, below the nadir hit in 2014 returning it to financial crisis lows.
JPM lost 1.2% in sympathy despite strong results setting up a possible test of the 200-day moving average, not touched since last summer, which would be worth a near 11% decline from here. The company reported earnings of $1.65 per share on revenues $25.6 billion vs. estimates of $1.51 and $24.6 billion respectively. But average core loans increased 9% over last year, missing estimates for 10% growth and fueling economy-wide concerns about slowing loan demand.
Edge Pro subscribers are preparing for further downside extension in bank stocks generally and JPM specifically with a new position in the April $84.50 JPM puts, which are trading near 60 cents.
On the economic front, March producer prices fell 0.1% vs. the flat result expected. On an annual basis, however, prices posted their largest increase since March 2012 — up 2.3%.
Consumers keep beaming with overconfidence, as the April Michigan consumer sentiment reading came in at 98.0 vs. the 96.5 expected and the 96.9 reported in March. The current conditions subindex hit its highest level since 2000 and nearly reached the all-time high set in 1999. Just let that sink in.
Markets will be closed Friday for the Easter holiday weekend. But looking ahead, stocks look vulnerable to continued downside extension as the CBOE Volatility Index — Wall Street’s “fear gauge” — hits pre-election levels on the geopolitical turmoil.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
