The market opened higher to kick off the first trading day of
June, but quickly picked up where it left off Friday, thanks in
large part to the worst ISM manufacturing reading in four years.
After that early selling, though, the indices found their footing
around 11:00 a.m. EDT, and the bounce picked up steam into the
close to take stocks firmly into positive territory for the
(INDEXDJX:.DJI) lead the way with a 0.92% gain, followed by the
S&P which finished up 0.59%, and then the Nasdaq which closed
Many posited that the dismal ISM report -- a reading of 49 vs. the
expected 51 -- would make the Fed more inclined to continue with
its current open-ended QE. A reading below 50 indicates that
manufacturing activity is contracting, rather than growing at a
slow clip like we have seen for most of the nascent economic
recovery. The "bad news is good news" for the market dynamic looks
alive and well, at least according to market commentators.
While there was moderate selling among the broad indices in the
morning, there were real pockets of violent downside action is
various sectors of the market. The biotech sector sold off sharply,
SPDR S&P Biotech ETF
(NYSEARCA:XBI) down more than 4% at one point before rallying into
the close to finish down 1.24%.
The Homebuilders (
) also sold off sharply but rallied hard in the afternoon to
prevent a potent down bar. The index finished the day down only
0.75%, but the intense early selling will certainly have traders'
attention in the coming sessions.
A well-publicized development over the last week or so has been the
quick demise of high dividend yield stocks, such as those in the
) and consumer staples (
) groups. The story goes that with bond yields rising (due to
growing rhetoric from Fed governors about "QE tapering"), investors
will become less in need of the yield that low-beta,
dividend-oriented stocks provide, and instead opt to allocate money
to more cyclical, high-beta stocks. I think the "QE tapering"
narrative has become a bit overdone. With inflation remaining below
targeted rates and the employment picture remaining dismal despite
the always-misleading unemployment rate (not to mention today's ISM
reading), it's hard to believe that the FOMC will wind down its
asset-buying program as soon as this summer, let alone this year.
Today's action would seem to support that thesis -- somewhat.
Low-beta dividend stocks bounced hard off lows of the day and put
in what look to be some short-term bottoming candles.
Procter & Gamble
), the staple of consumer staples, is a good example of this, as it
rebounded from an early sell-off to finished up 1.17%, bouncing off
a key support level. Bonds (NYSEARCA:TLT) also are holding above
the neckline of the potential head & shoulders pattern, even if
the ETF isn't sustaining much of a bounce.
As has become customary, the rest of the data this week (or more
specifically, the reaction to that data) will be very interesting
to note, highlighted by Friday's jobs report.
Or perhaps we are overanalyzing today's action. Perhaps shorts,
after some rare 2013 downside follow-through, were simply scared to
hold their positions into a Tuesday, a day which has produced 20
straight winning sessions. That idea sounds wacky, but in the 2013
market, Groundhog Tuesday is part of the New Normal.