Today, it's looking more and more like yesterday was just a one-day bounce, however, MoneyShow's Jim Jubak still doesn't think the retreat is big enough to have that much of an impact on the market as a whole.
Back in retreat again.
US momentum stocks, biotechs, mining stocks, the NASDAQ Composite, and China’s markets are all down today.
Small pockets of good news—earnings from Coca-Cola (KO) and Johnson & Johnson (JNJ)—haven’t been enough to move US stocks upwards although the Standard & Poor’s 500 (SPX) is down less than the NASDAQ Composite.
Momentum leaders, which had rallied briefly yesterday—in what now looks like a one-day bounce, because these stocks were so beaten up last week—are down again today on general nervousness over valuations, the growing crisis in Ukraine, predictions of weak earnings growth in the first quarter, and a very worrying report from China. As of 1:00 PM New York time, Tesla (TSLA) was down 5.53%, Facebook (FB) down 4.35%, FireEye (FEYE) down 6.79%, Amazon.com (AMZN) down 2.29%, Google (GOOG) down 2.07%, and LinkedIn (LNKD) down 2.54%. Among the group, only Twitter (TWTR) bucked the trend—the shares were up 0.86%—on news stories saying the company’s co-founders have no intention of selling their shares. The iShares NASDAQ Biotech ETF (IBB) moved deeper into a bear market with a 2.78% decline today bringing the total loss in the sector to 23.3%. Two stocks in the sector that I’ve been watching as possible buys at some point continued to perform like falling knives: Isis Pharmaceuticals (ISIS) was down 5.25% and Incyte (INCY) was down 7.32%.
Bad news out of China expanded today’s decline to include the global mining and commodities sector. Aggregate financing, China’s broadest measure of the amount of new credit being created in China’s financial system, fell to 2.07 trillion yuan ($333 billion) in March, from 2.55 trillion in March 2013, the People’s Bank of China reported today. The M2 measure of money supply rose by 12.1% year over year. That was down from a 13.3% year over year increase in February. Not surprisingly, given this evidence that China’s financial authorities haven’t yet turned on the money taps, Hong Kong’s Hang Seng fell 1.6% over night and the Shanghai Composite dropped 1.4%.
Because these figures on credit and money supply growth increase worries that China’s economy will grow by less than 7% in the second quarter, shares of global commodity producers are falling today. Brazil’s big iron ore miner, Vale (VALE), which faces its own Brazil specific problems, is down 8.14% today. Peers, BHP Billiton (BHP), and Rio Tinto (RIO) are off 2.46% and 3.39%, respectively. Despite some upbeat talk out of a global copper conference, Freeport McMoRan Copper & Gold (FCX) is lower by 2.28%.
I would note that Coca-Cola surprised Wall Street—and yours truly—by reporting 2% global sales growth in the first quarter. The shares are up 3.37%. Johnson and Johnson JNJ, which also reported first quarter results before the open, is up 1.19% after the company raised its earnings guidance for 2014 to $5.80 to $5.90 a share from an earlier $5.75 to $5.85.
Short of a surprisingly upbeat GDP report from China tomorrow—the National Bureau of Statistics announces first quarter GDP, fixed-asset investment, industrial production, and retails sales—I don’t see a near-term catalyst to convince investors that they’d like to take the risk of buying into a downward market trend, geopolitical uncertainty, and negative news from China.
It increasingly looks like the NASDAQ Composite will hit official correction territory. The index is down 8.65% from its March 5 high, so a 10% drop isn’t very far away. The index has already moved below one level of technical support at 4000 to 4050 and the next test—the 200-day moving average at 3933—isn’t far below the 3981 the index is showing this afternoon. The question for this index—and the technology and Internet momentum stocks represented in it—is whether a 10% correction will be enough to bring buyers out looking for bargains.
The question for the larger market is whether the large-cap S&P 500 will continue to hold up relatively well alongside the NASDAQ’S tumble. That index is down just 3.2% from its April 2 high. That’s a long way from correction territory.
So far, this retreat looks like a correction in the momentum sector alone, where traders and investors see valuations as having run up too far too fast. The better than expected revenue, and earnings numbers from Coke and Johnson & Johnson this morning, lend support to the view that this retreat isn’t a big deal for the market as a whole.
Tomorrow’s data from China will provide a further test of that view.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of any stock mentioned in this post as of the end of December. In preparation for closing the fund at the end of May, as of the end of March I had moved the fund’s holdings almost totally to cash.
