[Chart courtesy of MarketWatch.com]
Investors have sent stocks on a wild ride in recent sessions amid fears the central bank will trim stimulus while the economy remains weak. Recent selling could suggest the market may be moving away from its seven-month rally.
The Standard & Poor’s 500 Index moved 23 points (1.4%) lower to 1,609. Today’s loss came on the heels of yesterday’s weakness and the continued decline caused the benchmark average to fall 3.6 percent since its all-time closing high on May 21, a day before Fed’s Bernanke said the U.S. central bank may decide to taper its stimulus. The Dow Jones Industrial Average fell 217points (1.4%) to 14,961 and the Nasdaq Composite declined 44 points (1.3%) to 3,401.
All ten sectors ended in the red as declining issues outpaced advancers by a 4.4 to 1 ratio. Cyclical groups were among the main casualties of today’s selloff as four of six growth-oriented sectors saw losses in excess of 1.6%. Although cyclical sectors faced the bulk of today’s selling, defensively-oriented groups were not far behind. Consumer staples, utilities, and telecom services each lost between 0.9% and 1.2% while the health care sector slumped 1.4%.
We received a full slate of economic data today. The ISM Non-Manufacturing Index (NMI) rose 0.6 points to 53.7, above the consensus of 53.5, and indicating continuous growth in services activity since January 2010.
Elsewhere, employment reports showed modest growth, but missed estimates. The ADP private nonfarm payrolls rose 135,000 in May, below the consensus of 170,000. All gains were in services, which added 138,000 to payrolls. The goods-producing sector cut 2,000 positions, its second decline in a row.
Meanwhile, factory orders rose 1.0% in April, below the consensus of 1.5%. On a y/y trend basis, factory orders are up 0.9%, which is about in line with the average this year, but is far below the peak of 20.0% reached in May 2010, as the manufacturing recovery has lost momentum.
Moreover, the MBA Mortgage Application Index fell 11.5% last week, after dropping 8.8% in the previous week, with the Refinance Index dropping 15.0% and the Purchase Index decreasing 1.6%. The decline in mortgage activity came as the average 30-year mortgage rate jumped to 4.07%.
Finally, the Federal Reserve’s June Beige Book was mostly positive. The report characterized overall economic activity as increasing at a modest to moderate pace, while the manufacturing sector expanded in most districts.
On Thursday, the Labor Department is due to release data on initial jobless claims for the week ended June 1. That will be followed Friday by the department’s closely watched nonfarm payroll report for May.
Trendwise, weakness has continued as witnessed by our Trend Tracking Indexes (TTIs). The Domestic TTI slipped to +2.46% while the International TTI dropped to +5.20%. Our holdings in XLU and VNQ triggered their trailing sell stop points and were sold.
Some of our positions in low volatility ETFs have been losing steam during the pullback of the past 2 weeks but have not reached their sell stops yet; however, a few are within 2-2.5% of that trigger.