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Broadgate: Market News 13/3

13 March 2013

The S&P 500 ended lower on Tuesday, breaking a seven-session string of gains as investors pulled back from technology and financials, but the Dow eked out the smallest of gains to finish at another all-time closing high.

The Dow also hit another lifetime intraday high, while the S&P 500 remains within reach of its all-time closing high of 1,565.15, set on October 9, 2007.

The market’s rally in recent months has driven the Dow up 10.3 percent for the year and lifted the S&P 500 by 8.9 percent for 2013 so far. Signs of improvement in the economy and the Federal Reserve’s quantitative easing have helped to propel the advance.

Tech shares, which have lagged the rally, pulled indexes lower as heavyweights such as Apple and Google tumbled. Financials also underperformed the broader market on Tuesday, with the S&P 500 financial index down 0.6 percent.

“You have a little bit of buyers’ exhaustion at this juncture. We’ve had this move that has been startlingly smooth in terms of progression of advances, both since the beginning of the year and certainly over the last six to seven trading sessions,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

“Investors are waiting for this collective correction … for some time, and it’s teasing more and more buyers out of the market.”

The Dow Jones industrial average rose just 2.77 points, or 0.02 percent, to 14,450.06, another record close. Earlier, the Dow climbed to a lifetime intraday high of 14,478.80.

The Standard & Poor’s 500 Index dipped 3.74 points, or 0.24 percent, to finish at 1,552.48 – about 13 points below its record closing high.

The Nasdaq Composite Index slipped 10.55 points, or 0.32 percent, to close at 3,242.32.

Apple dropped 2.2 percent to $428.43. An analyst said the company has a 25 percent chance of missing its quarterly revenue forecast as iPhone sales slow.

Google fell 0.9 percent to $827.61, while the S&P tech sector lost 0.6 percent.

After a light economic calendar the last couple of days, investors will turn their attention to retail sales data on Wednesday to get a sense of how consumers are faring. Sales are expected to have increased 0.5 percent in February.

Adding to Tuesday’s weakness, Jens Weidmann, head of the Bundesbank and a member of the European Central Bank’s governing council, said the euro-zone crisis was not over.

Pullbacks during the rally so far this year have not been too deep as investors look for a good place to buy. Market moves have often been muted in recent days, even as stocks have ground higher.

The S&P healthcare sector index rose 0.4 percent and hit a fresh 52-week high at 519.97. Traditionally considered a defensive bet, the healthcare sector has been one of the leaders of the rally so far this year. It has gained 12.2 percent since December 31.

In the short term, however, healthcare appears to be overbought, suggesting investors may start to put their money elsewhere or take profits. Based on the relative strength index, healthcare has been overbought since the beginning of the month.

The S&P financial sector index and the S&P consumer discretionary sector index are on the cusp of overbought territory, while the S&P consumer staples sector index is just over the line in overbought territory.

In comparison, the S&P tech sector index, though, is not considered overbought; it ended down 0.6 percent on Tuesday.

Among the day’s gainers, J.C. Penney Co Inc shares rose 4 percent to $15.65 amid talk that the department store chain’s chief executive, Ron Johnson, might step down soon. A company representative, however, said there was no basis to market rumors that circulated Tuesday that Johnson might resign.

In another bright spot, Merck shares gained 3.2 percent to $45.04 after the pharmaceutical company said an outside board had allowed it to continue a trial assessing its Vytorin cholesterol drug.

Volume was below average, with roughly 5.82 billion shares trading on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Decliners outpaced advancers on the NYSE by a ratio of about 3 to 2 and, on the Nasdaq, by about 7 to 5.

Currencies

The yen’s sell-off paused on Wednesday but expectations of radical policy easing from the Bank of Japan meant further weakness was likely, while dour UK manufacturing data consigned sterling to the dog house.

The dollar fell 0.2 percent in Asia to 95.85 yen, yielding to profit-taking after having scaled a 3-1/2-year peak of 96.71 yen on Tuesday, where it had brought its year-to-date gains to more than 10 percent.

“There’s no change in the big downtrend in the yen. In the near term, the dollar/yen may fall further on profit-taking but I would say 94.50 is as low as it can go at most,” said a trader at a European bank.

Minutes of the BOJ’s February meeting showed on Tuesday policymakers were more open to adopting unorthodox policy options of the incoming governor than previously thought, suggesting the BOJ can push through aggressive stimulus easily.

“JPY should continue to remain under pressure on growing expectations of aggressive and potentially earlier easing coming through from the BOJ,” said Kiran Kowshik, strategist at BNP Paribas.

While investors took a bit of profit in the embattled yen, they turned up the heat on sterling, which slumped to a fresh 33-month low of $1.4832 on Tuesday before slightly recovering to $1.4933, up 0.2 percent on the day.

Against the Australian dollar, the pound was near lows not seen since 1985. It last stood at A$1.4473.

Sterling’s decline came after data showed British manufacturing output fell in January at the fastest pace since June, reinforcing fears the economy has tipped into its third recession since the 2008 financial crisis.

“Chancellor of the Exchequer George Osborne will present his budget next week and reports have emerged that the BOE’s remit could be changed to allow additional QE despite high-running inflation,” said Christopher Vecchio, analyst at DailyFX.

“Should this occur, the next leg lower in Gilt yields could be around the corner, which could put further downside pressure on sterling. We still find that GBP/USD should fall to $1.4200 by early-Q3.”

Meanwhile, the euro stood at $1.3030, well within the $1.2955-3135 range seen so far this month. Traders said the market was waiting for the outcomes of government bond sales In Italy and Spain due this week for fresh cues.

Italy will offer three-year and 15-year bonds at an auction later on Wednesday, while Spain plans to sell bonds due 2029, 2040 and 2041 at a special, off-calendar auction on Thursday.

Traders said any signs of funding stress in the euro zone’s third and fourth largest economies will no doubt weigh on the common currency.

A steady euro and the yen’s pullback kept the dollar index off its seven-month high hit last week following strong U.S. payrolls data.

The dollar index stood at 82.51, down slightly on the day and below Friday’s peak of 82.924, with immediate focus on U.S. retail sales data due at 1230 GMT.

While a strong reading could fuel speculation that the U.S. Federal Reserve may wind up its stimulus, some traders also say the market’s expectations of an end in the Fed’s quantitative easing might be premature.

“It is not like the Fed will exit from the QE at its next policy meeting. It’s true the Fed board members are debating it but a lot of voting members on the Fed’s policy board are dovish,” said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.

The Australian dollar stood not far from a 2-1/2-week high of $1.0336 hit on Tuesday, though initial resistance is seen around $1.0350-70, a level that capped the currency in February.

With Australia’s relatively high yield and the Reserve Bank of Australia in no hurry to cut interest rates soon, the Aussie appeared to be back in favor for now.

Asia faces a dearth of major economic news on Wednesday. In Europe, consumer inflation data in France and Spain and industrial production in the euro zone are due.

Source:  Reuters.com

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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