Hope Slowly but Surely Seeps out of the Market
Wall Street fell strongly on Tuesday as fear surfaced on the part of investors that Donald Trump wouldn’t succeed in fulfilling his promise to cut taxes this year. The stock market had soared to a series of new highs since November on the background of this very promise. The anxiety set off in the market only grew in advance of tomorrow’s congressional vote on the replacement health care package.
The S&P 500 and the Dow Jones shed over 1% yesterday in their biggest losing day since November. The financial sector (XLF) tumbled 2.89% in its biggest day of losses since June, its declines only getting worse ever since the Fed hiked rates by 0.25% last Wednesday – when it also signaled that the rate hike pace would be less aggressive than investors had anticipated.
Banks, overall, benefit, from higher interest rates and banking stocks are sensitive to changes in investors’ rate hike expectations as far as the Fed goes. Bank of America (BAC) toppled 5.77%, making it the biggest weight yesterday on the S&P 500. Goldman Sachs (GS) fell 3.72%, dragging the Dow Jones lower.
In summary for the day, the Dow Jones fell 1.14%, the S&P 500 losing 1.24%. The NASDAQ plunged 1.83%, the Russell 2000 plummeting 2.71% in its biggest losing day since September.
The leaders of the Republican Party stand to bring their controversial health care bill to debate in Congress on Thursday morning. The prospects are as following. They can afford to lose no more than 20 Republican votes; any less would mean to risk failure because the Democratic minority is united against the bill. Investors see in the Trump administration’s difficulty a sign that we’re likely to see a severe delay in actualizing the promise to cut taxes. After all, these expectations were the main reason that the S&P 500 had soared 10% since the elections.
Under the Trump administration, Wall Street has not become accustomed to sharp selloffs. The last time the S&P 500 had recorded losses of 1% or more in a trading day was 110 days ago on October 11th. A decline of 1% is rather routine on the market. Take for example the last two years. On average, the S&P 500 had fallen over 1% in 1 out of every 11 trading days.
Concerns are on the continuous uptick on Wall Street about stocks’ valuations. The S&P 500 is traded at a 12-month forward PE of 18, the historic average being 15.
On the S&P 500, 27 stocks rose to new 52-week highs, 7 dipping to new yearly lows; on the NASDAQ, 78 stocks recorded new 52-week highs, 79 falling to new yearly lows.
About 8.3 billion shares changed hands on U.S. exchanges, compared to the 7.1 billion average over the last 20 trading days.
Wednesday: We’re likely to see more selling over the rest of the week as the U.S. Congress wrestles with the fate of Obamacare. Despite political concerns having been the catalyst for yesterday’s declines, some market strategists see further price correction potential. Take for example, the UBS stock and derivatives strategist who said that he expects a correction of between 5%-10% before stocks can again head for higher ground. It will be important today to see how the stock market responds after yesterday’s selloff, but the genuine response will only come on Thursday with the results of the congressional vote.
With Capitol Hill behind the wheel of the market, there’s no way to know what the market will do. It can be said though that in the event the health bill passes, the stock market is likely to see an upsurge.
It’s worthwhile to assess the follow warning signs from up close, i.e. small-caps and crude, which fell yesterday – and both of which had recorded declines before yesterday’s sell-off. These are the two preliminary signs that many traders are looking at. If they continue to weaken, that could bode further weakness percolating into the market.
Crude is likely to be an important catalyst today, with inventory figures expected for 10:30 N.Y. time. Yesterday, crude fell by 1.8% to the $47.34 level, a 4-month low. The “black gold” is likely to deepen the latest price correction in the event reserves point to a larger than expected rise.
Wednesday’s Hot Stocks: NKE, FDX
Have a great trading day!
|Wednesday||9:00||FHFA Housing Price Index||–||Medium|
|Wednesday||10:00||Existing Home Sales||5.54M||Medium|
|Thursday||8:30||New Home Sales||560K||Medium|
|GIS||General Mills, Inc.||AM||Tuesday|
|LUX||Luxottica Group S.p.A.||AM||Tuesday|
|FIVE||Five Below, Inc.||PM||Wednesday|
|CAG||Conagra Brands, Inc.||AM||Thursday|
|CMC||Commercial Metals Company||AM||Thursday|
|MU||Micron Technology, Inc.||PM||Thursday|
Today’s Picks – Day Trading!
New York Strategy Swing
Today’s Picks – Swing “New-York Strategy
No.1 – FNSR
|Sector||Technology | Networking & Communication Devices|