Within minutes of the opening yesterday, the S&P 500 (SPX) rose to a new 2009 high, but despite some cheering from the crowd on the floor of the NYSE, the gain lasted just minutes.
A combination of a firm U.S. dollar, a pullback in oil prices and weakness in the financial stocks all conspired to take back the early advance. The 500 managed to squeak out a fractional gain, but the Dow 30 closed lower due to selling in the financial sector.
A cut in earnings estimates by UBS for a handful of big banks — Morgan Stanley (MS), JPMorgan Chase (JPM), Bank of New York Mellon (BK) — and a drop in the shares of Bank of America (BAC) eliminated most of Tuesday’s bank gains.
BAC fell following a Wall Street Journal article that said “that two CEO candidates said the company should consider breaking itself up, although the board rejected that idea.”
Even an upgrade by Credit Suisse of several regional banks, including BB&T (BBT) and SunTrust (STI), failed to stem the tide of sellers.
After days of weakness in the small- and mid-cap stocks, they reversed and posted slightly higher numbers, but the winner yesterday was the utility group, up 1.3%. So at the end of the day, investors flocked to safer stocks like American Electric (AEP) and Edison International (EIX).
At the close, the Dow Jones Industrial Average (DJI) was down 19 points to 10,453, the S&P 500 rose a fraction to 1,109, and the Nasdaq gained 9 points to 2,185.
The NYSE traded just more than 1 billion shares, but advancers led decliners by almost 2-to-1. On the Nasdaq, volume totaled 622 million shares with advancers ahead by 3-to-2.
Crude oil futures fell after a larger-than-expected rise in U.S. oil inventories was reported by the government. January crude oil lost $1.77, falling to $76.22 a barrel, and the Energy Select Sector SPDR (XLE) closed at $57.23, off 34 cents.
Gold for February delivery rose $12.80 to $1,213 an ounce. Dow Jones reported that, “On an inflation-adjusted basis, however, gold is far from its peak level of 1980, which was the equivalent of around $2,300. Some say this may be a target price for the metal eventually, but others say the number isn’t that important.”
The PHLX Gold/Silver Sector Index (XAU) closed at $197, up $4.27.
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What the Markets Are Saying
Volume continued to be light again yesterday, but the Dow Jones Utility Average (DJU) broke to new highs for the year, confirming Tuesday’s new high in the Industrial Average.
And, yes, I’m old-fashioned enough to still consider the DJU part of the three major Dow indices. But just in case someone has an issue with what I consider to be a “Dow confirmation,” you probably won’t have to wait too long for the Dow Jones Transportation Index (DJT) to hit its stride. The “Transports” gained about 41 points yesterday, closing at $4,037.69, just a hop from $4,049.60 made on Nov. 17.
Yesterday was a bit odd, with the tech-heavy Nasdaq outperforming the more staid Dow Industrials and the broad-based “500.” But some of the powerhouse techs did carry the day, so perhaps this is telling us that the “big boys” are already getting itchy to buy into the more speculative arena.
Point-and-figure gurus Dorsey Wright commented today that the “January Effect,” the traditional gain in mid-caps, actually begins in mid-December and lasts through the end of February.
They point out that the average gain of the Russell 2000 (RUT) from Dec. 15 to Feb. 28 is 5.1% over a 22-year average. Yesterday, the Russell 2000 led all other indices, gaining 1.17%.
The low volume has given the appearance of a sluggish market but, in truth, the major indices, and now the mid- and small-cap stocks, are showing renewed strength. And one of our most-watched indicators, the slow stochastic, issued a buy signal on all major indices.
It may not be too early to dip our toes into the stream of high-return possibilities.
Today’s Trading Landscape
Earnings to be reported before the opening include: A-Power Energy, Argon ST, Cubic, Del Monte, Flow, PLATO Learning, Toll Brothers and UTI Worldwide.
Earnings to be reported after the close: AeroVironment, ArcSight, Avago Technologies, Carter Holdings, Comtech Telecom, Diamond Foods, Liquidity Services, Marvell, Mentor Graphics, Novell, Orleans Homebuilders and Ulta Salon.
Economic reports due: chain store sales, Monster Employment Index, jobless claims (the consensus expects 485,000), productivity and costs (the consensus expects 8.6% non-farm productivity and -4.2% for unit labor costs), ISM non-manufacturing index (the consensus expects 52), and EIA natural gas report.
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