Today had all the makings of quiet trading session--summer
Friday, last day of the month, market building an upper level
range--which is perhaps why it wasn't. After erasing per-market
gains within 10 minutes of the open and holding higher the rest of
the morning, the S&P took a nose dive after lunch and
accelerated lower into the close. The index finished the day down
1.43%. Sell in May, go away could prove to be wise words, after
The Fed continues to be the driving force of this market, in both
directions. The central bank's dovish monetary policy and QE
program has been credited with driving the Dow and S&P to
all-time highs, but recent suggestions that the FOMC could begin
tapering its infamous asset-buying program later this year has
changed the dynamic of world markets. Suddenly, bond yields and
interest rates have spiked to their highest levels in more than a
year, although they remain historically low.
The 20+ bond ETF sold off early in today's session, but its fierce
bounce in the afternoon likely had something to do with the
market's downside acceleration. I personally think the "QE
tapering" narrative has gotten a little bit overdone. The Fed will
certainly take notice of what that type of rhetoric has done to the
credit markets, and with inflation expectations and jobs growth
remaining low I don't think we will see any QE tapering until late
2013 or 2014.
In a low-interest rate/bond yield environment, investors scour the
market for yield. A popular destination for that money in 2013 has
been the defensive, high dividend yield sectors. With that
narrative seemingly getting flipped on its head in the last two
weeks, you have seen those sectors show extreme relative weakness.
The consumer staples are one example of that phenomenon. The sector
had been leading the market up until Tuesday, when it got rejected
at 52-week highs. The ETF has traded sharply lower the rest of the
week, and today accelerated even further, dropping 1.96%.
Tech actually showed relative strength today as the Nasdaq ETF and
sector leaders (past and present) like
) held up well.
) looked like it wanted to break out early after news that the
company's chips would be used in new Android and Samsung tablets,
but was weighed down by broader market weakness. If the market can
bounce or hold up next week, I think you will see INTC break above
the recent pivot high.
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