Tuesday, April 24, 2018

Stock Market's Losses Turn A Deep Red

Stock indexes turned a deeper shade of red Tuesday as the benchmark 10-year yield stayed just under 3%. Losses in the stock market today sharpened in the afternoon, leaving the bulls with few places to hide.

The Nasdaq dropped 1.7% after being up 0.6% early in the session. The S&P 500 fell 1.3%. The Dow Jones industrial average was down 1.7% also.

Small caps, as measured by the Russell 2000, stumbled 0.6%, according to preliminary data. With the exception of the Russell 2000, indexes are trading below their 50-day moving averages.

Early data showed volume rose on both major exchanges, pointing to institutional selling.

The 10-year yield topped 3% for the first time since January 2014, apparently the cause of selling in recent stock market sessions. The yield is currently 2.99%.

At the end of 2017, the yield was 2.41%.

Traders now expect more rate hikes from the Federal Reserve than the two more hikes Fed officials had indicated.

Bank Gains Fade

As the focus shifts to rate hikes, bank stocks initially enjoyed a lift Tuesday. But the bank gains faded either to nothing or to worse than nothing.

For example, the money-center banking group was down about 1% after being up 1.2% earlier in the session.

Caterpillar (CAT) also reversed from good gains. The stock initially jumped 4.6% but then reversed to a 6% loss.

Meanwhile, new-home sales for March delivered a nice beat. The Street's consensus view was for 630,000, up from 618,000 in February. The figure came in at 694,000, a 10% beat.

Homebuilder Pulte Group (PHM) rose more than 6% in the first five minutes of trade. Pulte closed with a gain of nearly 3%.

Pulte's earnings soared 90%, topping views by about a third. The stock is battling near the 50-day and 200-day lines.

Coming Up

Before Thursday's open the durable goods orders for March will be reported. The Street expects new orders to rise 1.7%, down from 3.1% in February.

The first reading on first quarter GDP will be unrolled Friday before the open. Views call for a 2% gain, down from Q4's 2.9% pop.

What's Driving The Market's Tantrum?

Some market watchers see the stock market as a vehicle of wisdom, but lately the market has acted like a 2-year-old having a tantrum. What could be the cause? There are many possibilities.

— "Sell in May and go away" could be getting an early start. (Warning: In recent years, this has not been a useful strategy.)

— Syria could flame up, though it doesn't look too likely for now.

— The fuss surrounding tariffs is quiet, but things aren't likely to stay that way.

— Dodd-Frank is posing a stumbling block. The Republicans seem incapable of unity.

— The unspoken word is "infrastructure." Somehow this project always evolves to being about the border wall.

— The 10-year Treasury yield is near 3%, up from 2.41% at the end of 2017. If this is the problem, investors have to wonder why it took so long to get worked up. The biggest move came from year-end to the end of February. Yields, though, have spiked for more than a week to the highest level in four years.

Ultimately, investors may never know for sure what is causing the market's trouble. But like a 2-year-old's tantrum, a timeout is often the answer.

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