Something was off about Monday's trade and it wasn't just Facebook (FB), which declined 6.8%. The thing that was "off" was that market participants used the "new" news surrounding Facebook and the "old" news surrounding trade issues, political uncertainty, and rate-hike concerns as an excuse to take down stock prices en masse.
The overall losses were notable. The Nasdaq Composite dropped 1.8% while the S&P 500 and Dow Jones Industrial Average each dropped 1.4%. The Russell 2000 declined 1.0% and the S&P Midcap 400 Index declined 0.9%.
Nothing was safe (so to speak) on Monday. Everything went down (so to speak), such that relative strength was discussed in terms of which sectors went down the least. That distinction belonged to the industrials and financial sectors, which declined 0.8% and 0.9%, respectively.
There was no sector rotation as the market's most influential sector -- the information technology sector (-2.1%) -- took it on the chin as regulatory concerns led to some unwinding of crowded positions.
The broad-based selling drove the S&P 500 below its 50-day simple moving average, which in turn triggered more selling among technical traders honoring stop-loss limits.
Monday, in effect, caught people by surprise and it created an uneasy feeling that there could be more to the surprising downturn before it is done. That feeling was captured in the CBOE Volatility Index, which surged 20% to 19.02.
The increase in trading volatility was one of the changes in the market's physiology we highlighted in a Market View update published last Friday.
This morning, "things" feel less negative. It's a stretch, however, to say things feel good even though the S&P futures are up two points and are trading 0.3% above fair value.
Oracle (ORCL) is down 8.9% after reporting fiscal third quarter results. Those results were better than expected, yet analysts don't sound impressed with the pace of growth in Oracle's cloud business nor with the realization that a lower tax rate helped drive the positive earnings surprise.
Oracle's weakness is acting as a drag on the Nasdaq 100 futures, which are down four points but still trading 0.3% above fair value.
Market participants are going to have their eyes glued on the information technology sector and how it responds to yesterday's sell-off. Can it sustain opening gains or will it soon roll over and continue its slide? Importantly, they will also be watching how the broader market responds to the information technology sector's performance.
Presumably, a rebound in the information technology sector will be good for the broader market, so the real question is, will there be sector rotation in the event the information technology sector sells off again or will its weakness take down the rest of the market?
Market participants are also contending with a Washington Post report that indicates the Trump Administration could soon announce a $60 billion tariff plan against Chinese imports. The headline itself isn't terribly surprising, yet it's a sobering reminder that the uncertainty surrounding protectionist trade matters is going to persist.
Beyond these issues, everyone is well aware that tomorrow's FOMC decision has a heightened degree of intrigue surrounding it. The market expects the Fed to raise the target range for the fed funds rate by 25 basis points, but what it is anxiously waiting to see is whether the Fed's median rate hike projection for 2018 incorporates four rate hikes versus three currently.
So, the wait-and-see element is in play on a number of fronts, which is why it shouldn't be a surprise if there is an indecisive approach to today's market.