The stock market rebounded from oversold levels Monday as
took advantage of a long-awaited chance to buy prime rib at
At the same time, robust retail sales for March showed that
the consumer spending freeze brought on by frigid weather the
first two months of the year has melted.
SPDR S&P 500 (
) added 0.79% to 182.94.PowerShares QQQ (
), tracking the Nasdaq's 100 largest nonfinancial stocks, rose
0.8% to 84.78.SPDR Dow Jones Industrial Average (
) popped 0.89% to 161.45.
IShares MSCI EAFE Index (
), tracking developed foreign markets, picked up 0.57% to
66.64.IShares MSCI Emerging Markets Index (
) fell 0.22% to 41.74.
March retail sales, up 1.1% month over month, rose to their
highest levels since September 2012. The better-than-expected
data reported Monday came with upward revisions for January and
February that show consumer spending growing 2.1% in the first
quarter over the prior quarter, according to research firm IHS
"It is clear that consumer spending and confidence weathered
the unseasonably colder winter, and shoppers are ready to open
their wallets for big ticket items," IHS Global Insight director
of consumer economics Chris Christopher wrote in a note.
Outperformance in long-term bonds and noncyclical sectors such
as utilities this year suggests that investors have become very
risk-averse and are seeking safe-haven assets.Utilities Select
Sector SPDR (XLU) -- covering this year's leading sector -- has
rallied 11% this year, while SPY has shed 1%. Last year XLU's 13%
return lagged far behind SPY's 32%.
IShares 20+Year Treasury Bond (TLT), tracking long-term
government bonds, has returned 10% year-to-date as yields on
benchmark 10-year Treasurys fell from 3% at the start of the year
Brad Lamensdorf, co-manager ofRanger Equity Bear ETF (HDGE)
and chief investment officer of the Lamensdorf Market Timing
Report, recommends that investors move heavily into cash or short
stocks as a hedge.
Margin debt, or the amount of money that traders borrow from
their brokers, has reached an all-time high, he says. That fact
suggests that a cascade of selling could ensue when brokerages
make margin calls, in which clients have to sell stocks to pay
back their loans. In addition, corporate insider selling hovers
near 20-year highs, indicating that the people who know the most
about corporate prospects have lost confidence.
DIA found support at its 50-day moving average Monday. But SPY
and QQQ have broken below that key technical level, indicating
short-term weakness -- led by heavy sell-offs in biotechnology
and Internet stocks.SPDR S&P Biotech ETF (XBI) has tumbled 6%
year-to-date, andFirst Trust Dow Jones Internet Index (FDN)
About 18 months have passed since the
corrected more than 6%, so a correction is necessary to work off
some of the speculation and "irrational exuberance," says Randy
Frederick, managing director of trading and derivatives at the
Schwab Center for Financial Research.
What The Market Needs
"This near-term pullback in a bull market is actually exactly
what the market needs and is fundamentally sound for the long
term," Frederick said in an email. "Volatility hasn't spiked to
panic levels, and the rout remains largely confined to momentum
Frederick believes that the S&P 500 will retreat to its
early February low of 1,746 at most, down 8% from its new
all-time intraday peak at 1,897 on April 4. The Federal Reserve's
near-zero interest-rate policy leaves investors with few
alternatives to growing money outside of safe-haven
"The S&P 500 is likely to eclipse 1900 in due course," Sam
Subramanian, founder of AlphaProfit Investments in Sugar Land,
Texas, said in an email. "The economy continues to expand... .
Inflation is low, and the Federal Reserve maintains an
accommodative monetary policy to spur job creation."