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Stocks Close Lower, All Eyes On Support
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Stocks closed lower yesterday with tech, once again, leading the way.
The Nasdaq put in a new low close of this recent pullback/correction, but did not break Monday's low.
Same goes for the S&P -- new low close, but did not take out Monday's lows. Interestingly, they finished just a handful of points above last year's 12/31/19 close.
The Dow was down the least, but down nonetheless. Same story as the others with a new low close, but did not pierce Monday's lows.
We'll see if Monday's lows can hold again today.
If not, I'll refer back to what I wrote on Tuesday: with the indexes now all trading below the 50-day moving average, but still above the 200-day moving average -- that will likely be the upper and lower bands of the trading range for a while. Of course, once we can definitively close back above the 50-day, that will improve the technical outlook.
Currently, for the S&P, the 50-day is 3.46% above the market, while the 200-day is 4.05% below the market.
So keep your eyes on those levels.
In other news, yesterday's MBA Mortgage Applications were up 6.8% w/w, with purchases up 3.0%, and refi's up 9.0%.
The PMI Composite Flash report showed the Composite Index at 54.4, the Manufacturing Index at 53.5, and the Services Index at 54.6 (all near last month's levels and current expectations). Analyst's noted that after moving from 'flat to solid growth in August', we see September's flash rates holding 'steady'.
Today we'll get Weekly Jobless Claims, New Home Sales, and the Kansas City Fed Manufacturing Index.
In spite of the recent pullback, the underlying fundamentals for both the economy and the market are supportive.
On Monday, it was reported that U.S. Household Net Worth increased by nearly 7% during the April-June quarter to $119 trillion for a new record.
On Tuesday, Fed Chairman Jerome Powell said he believed the economy was "healing."
Also on Tuesday, Treasury Secretary Steven Mnuchin said the country was in the "midst of the fastest economic recovery from any crisis in history."
And top analysts are expecting unprecedented growth for the remainder of the year. And record growth next year.
So while pullbacks are never fun, keep your eyes on the big picture. Because once that's done, it looks like the economy and the market have a lot more upside to go.
Let me also say that I know some are worried about volatility ahead of the election, especially if it's contested.
The only contested election in recent history was the one between Bush and Gore back in 2000. That lasted for 36 days before a winner was declared. And during that time, the S&P lost 'just' -4.24%. (Hardly the end of the world.)
Of course, we all know the markets go up under both Republicans and Democrats.
However, there will likely be distinct winners and losers based on who ultimately wins.
To learn which sectors and industries should flourish under which candidate, be sure to read our latest commentary...
Trump vs Biden: A Sector Outlook
Best,
Kevin Matras
Executive Vice President, Zacks Investment Research
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