Stocks started the holiday-shortened week on a down note, with disappointing results from Walmart Inc (NYSE:WMT) pulling down the major averages with a wave of afternoon selling.
In the end, the Dow Jones Industrial Average lost 1%, the S&P 500 lost 0.6%, the Nasdaq Composite lost 0.1% and the Russell 2000 lost 0.9%. Treasury bonds weakened, pushing up the 10-year yield to 2.89%. Crude oil inched higher. Gold fell. And the U.S. dollar strengthened.
Breadth was weaker than the closing numbers suggested, with decliners outpacing advancers by a 2-to-1 ratio on the NYSE; 10 of 11 sectors finished in the red, with consumer staples leading the way down with a 2.3% loss.
WMT shares fell more than 10% after reporting weaker-than-expected Q4 results and lowered its forward guidance as Amazon.com, Inc. (NASDAQ:AMZN) continues to lay waste to the retail sector. On the upside, DineEquity Inc (NYSE:DIN) gained 17.5% after reporting better comps at Applebee’s.
The decline broke the market’s six-session winning streak and sets up another retest of the panic lows seen earlier this month as bond yields continue to creep higher on a combination of higher inflation and higher economic growth expectations.
The CBOE Volatility Index is rebounding at a relatively high level here — violating the pattern of the VIX compressing rapidly and relentlessly after a period of market panic. The mold has been broken with the blowup of volatility short exchange-traded funds like the Credit Suisse AG – VelocityShares Daily Inverse VIX Short Term ETN (NASDAQ:XIV), which had around $3 billion in assets.
That’s a lot of money that is no longer compressing volatility via derivatives, which was like the tail waging the market dog around.
The antecedents of the market freakout a few weeks ago are all still in place: Bond market weakness, higher rates and fear over an acceleration in the pace of the Federal Reserve’s rate hike pace.
Check out Serge Berger’s Trade of the Day for Feb. 21.
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.
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