U.S. Stocks Cool And Then Retreat

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The string of gains recently posted by U.S. stocks came to a screeching halt on Thursday and then equities reversed course. There was no particularly adverse report or economic data that could be cited as the cause for the pullback. But it seems a mix of profit taking by investors and uncertainty over corporate earnings together with disappointment over inaction by the European Central Bank (ECB) had a hand in Thursday’s stock movements.

How the major indices reversed course

The Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI), which has recently had more consecutive record closing than any other major U.S. equity index, shed 77.80 points on Thursday to pull back 0.4% from its previous closing mark.

Until Thursday, the chart of the blue-chip index showed a string of 9-session gains and seven record closings in a row.

The S&P 500 (INDEXSP:.INX) followed the Dow trend, pulling back 0.4% after shedding 7.85 points to close the day at 2165.17. Airline and Energy sectors led the S&P 500 down in Thursday’s trading.

Southwest Airlines Co (NYSE:LUV) led the fallout in the Airline sector following its warning of slowing revenue growth because of heightened competition. Southwest shares retreated 11%, Delta Air Lines, Inc. (NYSE:DAL) shares declined 4.2% and United Continental Holdings Inc (NYSE:UAL) shares pulled back 3.4%.

The 2.2% drop in U.S. crude oil prices triggered a selloff in oil-related stocks in the U.S. and saw the energy sector in the S&P 500 decline, though only by 0.09%. Fresh fears are gripping investors as supply of refined crude oil products appears to be exceeding demand.

The tech-dominated NASDAQ Composite (INDEXNASDAQ:.IXIC) fell 0.3% after shedding 16.03 points to close at 5073.90.

No surprise

But the abrupt shift in the direction of U.S. equities during Thursday’s trading didn’t come as a major surprise to some traders and analysts. As much as the markets have been bullish in the post-Brexit period, a closer look at the corporate earnings and other economic indicators suggest that caution is still necessary.

Equity catalysts

Stocks have been gaining following a string of positive U.S. labor, retail and housing data. The rise of Teresa May to the position of British PM also calmed investor fears over the impact of the Brexit vote on global economies. But failures by the Bank of England and the European Central Bank this week to roll out additional easing measures immediately appeared to have disappointed some investors, triggering profit taking.

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