Stocks started August higher but the same themes that have plagued bullish investors for a month surfaced in the middle of the morning, notes Jon Markman of Pivotal Point.
Financial, industrial and materials stocks began to roll over. By the late afternoon JP Morgan (JPM), Caterpillar (CAT), and US Steel (X) were well off their early highs. The S&P 500 finished at 4,387, down 0.2%.
It is hard to be bearish. The index is near record levels and so many stock groups are deeply oversold.
Common sense suggests professionals will circle back for out-of-favor laggards.
Unfortunately, there have been so many false starts many pros may have given up on the sector-rotation trade. There is support for the benchmark S&P 500 at 4,360, about 0.3% lower. That looks like a good place for bullish investors to re-start the rally.
The Dow was 0.3% lower at 34,838.16 while the Nasdaq Composite gained less than 0.1% to 14,681.07.
Breadth slightly favored decliners and there were 461 new highs vs. 84 new lows. Big caps on the new high list included ASML Holding N.V. (ASML), Nike (NKE), Pfizer, inc. (PFE), Cisco Systems (CSCO), and Morgan Stanley (MS). Pretty good leadership.
Utilities fared best, with materials the weakest sector. That paints a defensive picture.
The Institute for Supply Management's US manufacturing index fell to 59.5 in July from 60.6 in June. That result lagged expectations for 61. Despite the recent easing from historic highs, the indicator continues to signal a rapid expansion.
The 10-year US Treasury yield dropped to 1.18% from 1.24% Friday.
West Texas Intermediate crude also plunged, declining $2.53 to $71.42 per barrel.
An internal US Centers for Disease Control and Prevention document published late last week by The Washington Post urged the agency to acknowledge the risk of the highly contagious Covid-19 delta variant, rendering the diagnosis of "the war has changed" for pandemic containment efforts. Chinese authorities are reportedly rushing to control delta variant infections said to have spread to at least 14 provinces.
US construction spending rose 0.1% in June following a 0.2% decrease in May, as a 1.1% gain in private residential construction was offset by a 0.7% decline in private nonresidential construction and a 1.2% drop in public construction.
Single-family residential construction rose by 1.8%, while multi-family construction was down 0.1%. Remodeling spending rose 0.4%. Home-building data for June released last month showed an increase in housing starts but a decline in building permits issued.
Second-quarter earnings growth has come in at 85%, beating estimates for an increase of 63%, a report from Business Insider said, citing data compiled by FactSet. With more than half the S&P 500 companies having already reported second-quarter earnings, 88% of those reporting have outpaced sales and profit expectations, according to the data.
On Monday, ON Semiconductor (ON) reported record second-quarter results that came in above expectations amid strong momentum in its automotive and industrial end markets and set out an upbeat third-quarter outlook. Shares surged more than 12%.
Tesla (TSLA) has cut the price of its Model 3 Standard Range version in China by 15,000 Chinese renminbi ($2,321), the electric car maker said via its account on the Chinese microblogging platform Weibo. The new starting price is 235,900 renminbi, after subsidies. The stock was among the top gainers on the S&P 500, rising 3.3%.
Learn more about Jon Markman at Pivotal Point.
