[Chart courtesy of MarketWatch.com]
While the broader market and the Nasdaq finished with gains to snap a four-day losing streak, blue chips spent most of the day in positive territory, but took a nosedive in the last half-hour of trading to end lower.
Retailers’ results surpassed estimates and investors awaited signals on stimulus measures from the Federal Reserve. Dow member Home Depot bested the Street’s estimates and guided higher, TJX Company’s results were above projections, and Best Buy Co easily exceeded analysts’ forecasts, while J. C. Penney posted a wider-than-expected loss despite posting sequentially improved same-store sales.
A retreat in Treasury yields contributed to the relative strength of equities as the benchmark 10-yr yield fell seven basis points to 2.82%. The pullback in yields helped rate-sensitive sectors such as telecom services (+0.5%), utilities (+0.8%), and home builders. The relative strength of home builders provided a measure of support to the discretionary sector, which ended atop the leaderboard.
While most cyclical sectors displayed strength, industrials and technology underperformed. The industrial space ended flat as the underperformance of Deere and Dow component General Electric overshadowed the relative strength of transportation companies.
The Dow Jones Transportation Average settled higher by 0.9% as 18 of 20 components posted gains. Elsewhere, the tech sector was pressured by its top component. There was no economic data reported today, however, tomorrow will begin to heat up with the release of existing home sales for the month of July, while MBA Mortgage Applications will also be reported.
But the highlight of the week are the minutes from the last Federal Open Market Committee meeting, as market action globally appears to have shown that the timing and pace of Fed tapering and the prospect for rising interest rates in the bond market is the top worry for investors.
European markets along with stocks in Asia came under pressure as heightened anxiety in the U.S. that the Federal Reserve may begin to taper its asset purchase program. Weak corporate earnings in the region weighed on European equity markets, with the mining sector leading the downward trend.
Japan’s Nikkei 225 Index fell to its lowest level in nearly 2 months, as exporters with exposure in emerging markets weighed on the index. Meanwhile, China’s Shanghai Composite Index avoided the rest of Asia’s sharp losses, only dropping less than a percentage point, as investors’ confidence received a boost from the central bank governor pledging more financial support for the economy.
Our Trend Tracking Indexes (TTIs) stabilized and ended the day at +1.76% (Domestic TTI) and +5.07% (International TTI).