Uncertainty usually leads to listless markets, and that is what investors experienced yesterday as today’s FOMC’s policy statement became the focus of concern. But a late-session rally regained early losses, and the market closed higher-to-mixed, and the U.S. dollar rose by 0.5%.
There was very little news yesterday to catch investors’ attention, but Citigroup’s (C) upgrade of Wal-Mart (WMT) from a hold to a buy was enough to send the Dow Jones Industrial Average (DJI) to a gain for the day and drive WMT up 2.82%.
And there were several favorable economic reports for investors to consider: Industrial production for February increased by 0.1%, and the Empire State Manufacturing Index for March hit 22.9, which was slightly better than the forecasted 22.
Financial stocks were hit by selling after Senator Chris Dodd (D-Conn.) announced a new financial reform plan proposing that new limits be placed on risk assumed by major banks. Initially bank stocks were down, but by the close, most had bounced back and the sector finished the day with a gain of 0.2%.
At the close, the Dow rose 17 points to 10,642, the S&P 500 (SPX) was up less than a point to 1,151, and the Nasdaq (NASD) fell 5 points to 2,362.
On the New York Stock Exchange, just 927 million shares traded, and decliners were ahead of advancers by about 7-to-5. On the Nasdaq, 551 million shares traded and decliners were ahead by 3-to-2.
Crude oil for April delivery fell $1.44 to $79.80 a barrel, because oil traders are also uneasy about the economy and the future interest rate policy of the Fed. The Energy Select Sector SPDR (XLE) fell 60 cents to $57.90.
April gold rose $3.70 to settle at $1,105.40, and the PHLX Gold/Silver Sector Index (XAU) fell 53 points to 165.51.
What the Markets Are Saying
Even though the S&P 500 closed above 1,150, there were no drum rolls or fireworks. Instead, yesterday was one of the least volatile sessions of the year, with lower-than-average volume and breadth a stand-off.
The Nasdaq closed lower yesterday despite small advances for the quality stocks, and the index, along with the others, is now in grossly overbought territory. However, the Nasdaq’s momentum is strong, and while other major sectors like transports, technology and financials have all been moving steadily higher, the Nasdaq’s gains outshine them all. If you are a trader, the Nasdaq is still probably the place to do your hunting.
Dorsey Wright & Associates noted in last night’s report that in their database of 198 international funds, only five have made new highs since January. But, during that time, the major U.S. indices have achieved new highs.
Even more of a surprise, the equal-weighted S&P has outperformed the emerging markets iShares Trust MSCI EAFE Fund (EFA) by more than 11%. Dorsey Wright is not yet willing to say that emerging market shares should be sold, but they should be “watched.”
I’ve been watching them, too, and in January recommended that they should be swapped for U.S. ETFs. If you haven’t yet done that, in my opinion, it’s not too late.
3 Emerging Market Bubbles Ready to Burst
Conclusion: Traders should stick with the Nasdaq as an ongoing momentum play, but be sure to use stop-loss orders since the danger of a reversal is now high. Longer-term investors should stick with their quality positions, but continue shifting to U.S. funds and stocks rather than international and emerging markets funds.
Today’s Trading Landscape
Earnings to be reported before the opening include: American Dairy, Ariad Pharmaceuticals, China Fire & Security Group, Cypress Biosciences, DSW, FactSet, General Steel, MDS, NGP Capital Resources, Simcere Pharmaceutical Group, TBS International and Town Sports International.
Earnings to be reported after the close include: AAR Corp., AMBAC Financial, China Finance Online, China Nuokang Bio-Pharmaceutical, Discover Financial Services, Emdeon, EV Energy, KongZhong and rue21.
Economic reports due: ICSC-Goldman Sachs store sales, housing starts (the consensus expects 565,000), import and export prices, Redbook, and FOMC meeting announcement (the consensus expects the fed funds rate to be 0% to 0.25%).
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