Stocks had a roller coaster of a day as the
Dow Jones Industrial Average
(INDEXDJX:.DJI) reversed from a near triple-digit decline to just
barely finish up on the day.
In keeping with recent trends, we saw notable weakness in
dividend-paying stocks, notably utilities (NYSEARCA:XLU), which
finished the day down over 1%.
These stocks had run up enormously into late April, so perhaps they
were due for profit-taking, but it's likely that investors are
bracing themselves for higher interest rates due to increasing
speculation that the Fed may reduce the scale of its stimulus
This is putting pressure on many income producing investment
instruments. Junk bonds would be another example, as they had a
very positive start to the year, but they have been selling off as
In economic news, the April durable goods number came in higher
than expected at 3.3%, easily surpassing the 1.6% consensus.
However, keep in mind that this number is both difficult to
forecast and volatile, so it is not as reliable as its market
impact might suggest.
Interestingly enough, while US stock futures reacted positively
to the data, the happiness lasted for less than 15 minutes as
stocks sold off sharply until around10:00 a.m. ET, which is when a
rally started at 1637 on the
This was a near repeat of Thursday's action, which is when we
saw early weakness, and then a rally starting from 1635, implying a
resistance level in this range.
This volatility, along with the recent wild swings in Japan and
the precious metals markets, appears to have traders on edge. This
could be a double-edged sword; while emotions running high results
in volatile trading, these conditions imply a wall of worry, which
is technically bullish.
That said, if Japan can drop 7% in one day, we have to keep our
eyes open for big moves on the home front, particularly if fears
involving Fed tapering become widespread.
Tuesday's Financial Outlook
As a reminder, the market will be closedon Monday in observance
of Memorial Day.
There are only a few notable earnings reports scheduled
) will report in the morning, and
United Natural Foods
) will deliver its report after the close.
In economics, the Case-Shiller home price report will be
released at9:00 a.m. ET , with Consumer Confidence following
at10:00 a.m. ET.
However, we would advise those watching the markets closely to keep
their eyes on Japan, as there is obviously heightened risk for
volatility there, which could bleed into US markets.