EmailThe stock market had a tough go of it yesterday. The S&P 500 dropped 1.1% while the Russell 2000 declined 1.7%.
The losses were understandable. It is not every day that the market has to deal with threats of a nuclear attack on the US, like it did yesterday after North Korea's army said it had final approval to use nuclear weapons against the US.
That was only a third of the concern, though. The other two-thirds of concern arose from the softer than expected ADP and ISM Services reports for March and an afternoon headline that San Francisco Fed President Williams -- a known dove -- indicated that the Fed could begin to taper its purchases this summer.
All of that was enough to spur a steady wave of selling interest that persisted throughout the session and threw every sector for a loss.
The market rallied 10% in the first quarter. In other words, it was ripe for profit taking. Yesterday's headlines simply facilitated such interest, yet we think the ADP and ISM Services numbers had more of an impact than the other headlines did.
The bulk of the losses occurred in the wake of those releases, which challenged the notion that growth momentum will be accelerating in coming months. It was little surprise then to see that economically-sensitive sectors led yesterday's retreat and that commodity prices continued to sink.
Things are looking better this morning, however, in a perfectly-orchestrated case of good central bank timing. The Federal Reserve isn't in the spotlight today on that front so much as the Bank of Japan, the Bank of England, and the European Central Bank are.
The Bank of Japan has the lead role today after announcing a bold monetary directive that featured a plan to double the size of its balance sheet within two years in an effort to achieve a 2.0% inflation rate over the same period. After being down 1.7% ahead of the announcement, the Nikkei surged into the close to finish with a 2.2% gain. The yen fell sharply in response and is currently down 2.7% against the dollar.
The Bank of England and the ECB left their respective policy rates unchanged. ECB President Draghi for his part said accommodative policy will remain in place for the foreseeable future.
Notwithstanding these supportive central bank moves, the S&P futures aren't showing a lot of vigor at the moment. They are up just two points and are trading slightly ahead of fair value.
A disappointing initial claims headline has provided a headwind, although much of the disappointment can be attributed to difficulties the Dept. of Labor has with its seasonal adjustment factors around the Easter holiday. To that end, claims for the week ending March 30 rose by 28,000 to 385,000 (Briefing.com consensus 345,000).
Continuing claims for the week ending March 23 dropped by 8,000 to 3.063 mln (Briefing.com consensus 3.045 mln).
Headline disappointments, though, have gone a long way this week toward cooling the stock market rally. With the nonfarm payrolls report due to be released tomorrow, it is possible that cool breezes will be blowing again today if there isn't a pickup in leadership from the cyclicals.
