A strong bull market brushes off negative-sounding headlines in sort of the manner that a star NFL running back stiff-arms a would-be tackler. The negative news just bounces off.
[ibd-display-video id=3037819 width=50 float=left autostart=true] The stock market offered that kind of action on Wednesday.
Major indexes slipped right from the start as investors digested reports that ranged from top Chinese officials advising that the Middle Kingdom curtail its appetite for U.S. government debt to legendary bond fund manager and PIMCO founder Bill Gross declaring the bear market in bonds has arrived. Later in the day, stock prices wavered a bit on news that President Trump is mulling a dismantling of Nafta, the decades-old free trade agreement uniting the U.S., Canada and Mexico.
Yet by day's end, the damage was hardly a door ding.
The Nasdaq composite, down as much as 0.7% in the first half-hour of trading, rebounded steadily to finish the day down just a little more than 0.1%.
The S&P 500 and the Dow Jones industrial average were also off around 0.1%. The Russell 2000, a popular benchmark for smaller companies, was off less than 1 point. At 1559, the Russell shows a 35% gain since the market's rare Day 3 follow-through on June 30, 2016, which confirmed a new market uptrend was underway.
While volume increased mildly on the Nasdaq, the puny size of the drop meant that the distribution-day count remains the same. The S&P 500 continues to hold just one distribution day, or instance of unusually heavy profit taking by the institutional crowd, over the past 25 trading sessions.
Volume rose 1% on the NYSE to 3.39 billion shares. Given that the 500 ended the session high within the intraday range, the action hinted at institutional support, not eager profit-taking.
So while some key indexes finally halted their long winning streak, the mildness of the decline was ideal. The distribution-day count remains low, as seen in the accompanying Market Pulse.
What has gone up? The Accumulation/Distribution ratings for the major benchmarks.
As of Tuesday's close, the S&P 500 showed a best-possible A+ grade on a scale of A to E. An A indicates heavy net buying by fund managers over the past 13 weeks, an E stands for heavy net selling.
The Dow also scores an A+, while the Nasdaq saw its grade rise to a B+ vs. a C+ at the start of the year. (You can track the current rankings via the General Market Indicators page, a link found at the bottom of this article.)
The sharp ascent in interest rates, meanwhile, certainly has ramifications for investors. Companies that carry a heavy load of long-term debt will see higher financing costs. For this reason, IBD generally advises that readers focus on companies with a long-term debt-to-shareholder equity ratio of below 100%. (IBD takes the average shareholders' equity over the past two years to determine the denominator of this ratio.)
This Sector Is Getting Pounded
While utilities certainly boast marvelous cash flows and some do not show debt-to-equity ratios exceeding 100%, the perception of higher costs can still hurt stock prices. That could be what we're seeing now. The Dow utility average, which fell like a rock last week, lopped off another 1.1% on Wednesday and is down 4.2% since Jan. 1.
The Dow utilities have also entered the territory of an intermediate correction. At 693, the index is now 11% below its November peak of 778.
Utilities have sold off in the wake of a strong rise in the long-term cost of borrowing money. In early September, the benchmark U.S. Treasury bond held a yield of 2.05%. On Wednesday, that yield climbed to as high as 2.58%, the highest since a 2.62% reading in March 2017.
In sharp contrast, 2018 is already shaping up to become possibly the Year of Cyclicals.
Look at the Dow transportation average. This medley of ship, truck, railroad and airline stocks edged 0.1% higher on Wednesday. At 11,030, the sector index is now up 3.9% year to date following a 17.3% climb in 2017.
Who's Leading The Market Now?
Look at the top 20 industry groups as ranked by IBD. The trucking group through Tuesday's close ranked No. 6 in terms of six-month price performance. Residential builders, getting a boost by growing demand by millennials and step-up buyers, ranked No. 9. Construction and mining gear, metal ores, gaming, lodging, and even oil drilling groups also ranked in the top 20.
While the Innovator IBD 50 ( FFTY ) ETF fell harder than the major indexes on Wednesday, it's normal for leading stocks to fall more than the general market. The ETF dropped 0.7%. In 2017, it rose 37%.
Two of the 10 names on IBD Leaderboard sank in above-average trade, but the declines by China's 58.com ( WUBA ) and oil and gas play Diamondback Energy ( FANG ) were trifling. 58.com bounced sharply off intraday lows, a bullish move.
58.com, which has a float of 113 million shares and a market value of $12.2 billion, is up 67% since joining Leaderboard on July 10.
( You can trade the IBD 50 in one click via the Innovator IBD 50 ( FFTY ) exchange traded fund by Innovator Capital Management . Follow Saito-Chung at @IBD_DChung on Twitter for additional commentary on stocks and financial markets. )
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.