The decidedly weak showing from the stock market on Tuesday snuck up on a lot of people, which is exactly why the market was decidedly weak. The S&P 500 hadn't suffered a daily loss of 1.0%, or more, in 109 trading sessions -- a streak that began last October. That streak has now ended and it did so as participants unwound some trades, feeling trapped with long positions established at, or near, previous record-breaking highs.
The unwinding effect was catalyzed by several developments/considerations:
- The continued, and surprising, flattening of the yield curve, which broadsided the bank stocks and led to a 2.9% decline in the heavily-weighted financial sector
- An emerging sense of angst that the health care reform plan might not get passed, which triggered residual concerns about tax reform getting pushed back and bogged down in an equally sticky debate
- Renewed selling pressure on the retail stocks, which were upended by the reaffirmation from the House Ways and Means Committee Chairman that a border adjustment tax is " a given" with a tax reform plan
- The notion derived from the sharp losses in the Russell 2000, the flattening yield curve, and the underperformance of the financial and transportation sectors that the market is recognizing it has gotten ahead of itself with its economic growth expectations
- Technical selling as the S&P 500 violated several support zones
Other factors may have also been at work, such as the simple notion that valuation is stretched and some profit-taking is in order. The bottom-line is that the stock market just didn't act well on Tuesday, which has everyone on high alert for how it will act today.
The S&P futures have shown a measure of resiliency. They were down as many as 10 points in the overnight trade, but are now down two points. That has the cash market on track for a flattish open.
There weren't any distinct drivers of the rebound in the futures trade other than perhaps the belief that yesterday's drop will be regarded as a buying opportunity, as every pullback since the election has been.
Faith in that recovery trade could be a bit fickle at this point, though, without any clarity yet on the fate of the House GOP's health care reform plan. A vote on the bill will reportedly take place Thursday.
Corporate news items aren't providing enough of a lead for a recovery trade.
FedEx (FDX) is trading 2.8% higher in pre-market action after coming up short of fiscal third quarter estimates, but offering some relatively reassuring guidance. Conversely, Nike (NKE) is down 5.4% in pre-market action after topping fiscal third quarter estimates, but offering some relatively disappointing guidance for fourth quarter gross margins and worldwide futures orders.
Separately, the competitive fallout in the retail industry persists as Sears Holdings (SHLD) conceded in an SEC filing that substantial doubts exist about its ability to continue as a going concern. Judging by the performance of its stock in recent years, it would appear those doubts aren't entirely surprising to the market; nonetheless, the admission serves as another nettlesome reminder that the retail industry is dealing with some massive disruptions stemming from online competition and changing consumer buying preferences.
The oil market knows a little something about competitive disruption. U.S. producers have eased OPEC's stranglehold on the market, yet the increased supply from those producers has been a headwind for rising oil prices despite production cutbacks from OPEC and some other non-OPEC countries.
That supply factor is in play again today, as oil prices, which hit a 52-week high of $54.45 on February 23, have slipped another 1.5% today to $47.50 per barrel. That decline follows the American Petroleum Institute's weekly inventory report that showed a 4.5 million barrel build in crude stockpiles.
The Department of Energy's weekly inventory report will be released at 10:30 a.m. ET, shortly after the release of the Existing Home Sales Report for February (Briefing.com consensus 5.54 mln; prior 5.69 mln) at 10:00 a.m. ET.
The issue affecting the housing market isn't that there is too much supply, but rather, that there is too little of it. That has been a tailwind for prices, which have risen on a year-over-year basis for 59 consecutive months.
Traders will be attuned to the report on existing home sales, yet their primary focus today will be on the market itself and how it acts after suffering a record-breaking move of another kind on Tuesday.