After The Close - The bears took control of trading from the opening bell and, for the most part, never looked back. The selling, which also was prominent on the Continent, was prompted by concerns about the continuing violence in Eastern Europe between Russia and Ukraine, which, according to reports, has turned deadly. We also think that there was a case of some profit taking following a few decent sessions on Wall Street. The lack of significant earnings and economic news on these shores had investors looking a bit more at the international problems, including the aforementioned escalating conflicts and the slowdown in manufacturing in China. All told, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index were 130, 57, and 17 points lower, respectively. The losses in the small-cap area were every bit as pronounced as those in the NASDAQ, with the Russell 2000 also falling by more than 1% in the latest session.

There was once again a good deal of sector rotation in play. Of note, we saw money move out of the technology and financial sectors and into the energy names. The main culprit in the technology space were the Internet stocks, which were led lower by recent IPO Twitter (TWTR). Shares of the social media company fell sharply, hitting an all-time low in intra-day trading, after the expiration of the stock’s six-month lock-up period.

Meantime, the energy issues remain in demand, and that group was the only group among the top-10 sectors to finish the session in positive territory. All of the energy stocks, with the exception of those of the struggling pipeline companies, were in demand during today’s volatile session. In particular, it was a good day for shares of Anadarko Petroleum (APC), which were higher after the oil company reported its latest quarterly results. There also some mild interest in some of the more-defensive names, most notably in telecommunications and the utilities sectors, with many investors looking for more safety. Likewise, the demand for fixed-income securities also picked up today. In fact, the yield on the 10-year Treasury note, which moves in the opposite direction to the price, settled at 2.60%. Both bonds and crude oil prices were higher on the crisis in the Ukraine.

The earnings news, which by most accounts, was, at best, mixed today, did not provide much support to the equity market. In fact, a somewhat disappointing result from insurance giant American Int’l Group (AIG) after the close of trading yesterday weighed on the insurance names and the financial sector. Meantime, we witnessed mixed results from a few stocks in the telecommunications space. Shares of Discovery Communications (DISCA) were lower, while the stock of DirecTV (DTV) moved higher after each company reported its latest quarterly results. In the consumer discretionary group, shares of Office Depot (ODP) jumped after the company beat bottom-line expectations and announced the closing of more than 400 of its stores. But shares of athenahealth (ATHN) tumbled after the stock was slammed by Greenlight Capital’s noted hedge fund manager David Einhorn. Investors should also note that entertainment giant and Dow-30 component Walt Disney (DIS - Free Disney Stock Report) was scheduled to release its latest quarterly results after today’s closing bell. Shares of Disney were down today, along with just about every other Dow-30 component, with the notable exception being the shares of chipmaking giant Intel (INTC - Free Intel Stock Report), which gained narrowly. Shares of drugmaking behemoth Merck & Co. (MRK - Free Marck Stock Report) were the biggest laggards in the index of 30 bellwether companies.

As noted, we did get some news on the economy when the Commerce Department released trade gap data for the month of March. That report showed that the deficit narrowed, as exports rose and less inventory was needed to be worked down. This report provided some support to the growing consensus view that economic output will pick up considerably from the scant 0.1% pace witnessed during the first quarter of this year. The report, though, is not considered an equity market mover and thus did not provide much of a counterbalance to the aforementioned negative overseas tidings.

Looking ahead to the rest of the trading week, we would be remiss if we did not warn investors that the lack of major earnings and economic news may create a vacuum of trading, which, much like today, has the potential to raise the volatility in a market that even with today’s pullback is still overextended. - William Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


12:15 PM EDT - The U.S. stock market is trading modestly lower today. At just past noon in New York, the Dow Jones Industrial Average is off 67 points; the broader S&P 500 Index is down six points; and the NASDAQ is lower by 20 points. Market breadth is negative, as declining issues are outweighing advancers by about two to one on the NYSE. Most of the market sectors are in negative territory, too. There is pronounced weakness in the financials, with losses in the insurance issues. The technology sector is also weak, as investors continue to move out of the Internet names. However, some strength can be found in the energy group, thanks to solid gains in the exploration and production area. Also, crude oil, now at almost $100 a barrel, is strengthening today, and that, too, may be helping the energy issues.

Technically, stocks have been locked in a sideways trading range for quite a while. Given the market’s strong performance over the past year, the bulls seem to be a bit fatigued and a pause may indeed be necessary. Notably, even in bull markets, stocks go through normal, 10%-15% corrections. To some extent, pullbacks and consolidations can be healthy, as it gives traders time to take profits, adjust their expectations, and rotate into new names.

As was the case yesterday, traders received little economic news today. However, the nation’s trade gap narrowed to $40.4 billion in March, which was in line with what many had expected. Tomorrow, will also be a light day for reports. However, on Thursday the employment situation will return to center stage, with the release of the weekly initial and continuing jobless claims.

Meanwhile, corporate earnings reports continue to stream in. Of note, Office Depot (ODP) posted better-than-anticipated figures, and that issue is trading higher. But, American International Group (AIG) shares are slipping, as the insurance giant put out mixed results. In the M&A area, Bayer is buying Merck’s consumer business. Merck (MRK -Free Merck Stock Report) shares are off a bit on the news. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Stocks to Watch from The Survey The drumbeat of earnings news continues. Notable winners from this most-recent batch of reports include office supplies retailer Office Depot (ODP), television and media company Discovery Communications (DISCA), Zoetis (ZTS), a developer of drugs and medications to support animal health, energy giant Anadarko Petroleum (APC), and satellite television provider DIRECTV (DTV). Indeed, all of these stocks are moving higher ahead of the bell, paced by ODP and DISCA. Not all reports and updates were greeted warmly by the investment community, however, and shares of toymaker LeapFrog (LF), cosmetics company Nu Skin Enterprises (NUS), insurer American International Group (AIG), fertilizer maker The Mosaic Company (MOS), and oil and natural gas producer Quicksilver Resources (KWK) are all indicating lower openings this morning. The stock of athenahealth (ATHN) is down sharply in pre-market trading, meanwhile, after activist investor David Einhorn announced that his firm has taken a short position in the provider of Internet-based business services for physician practices.

It’s also another busy day on the M&A front. The pharmaceuticals space continues to be a hotbed of activity, as Bayer has agreed to pay $14.2 billion in cash to acquire the consumer care business of fellow drugmaker Merck (MRKFree Merck Stock Report), causing MRK stock to climb slightly in the premarket. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Before The Bell - When the stock market opened for trading yesterday morning, it looked as though we would have one of those Mondays again, which would not have been all that surprising given that the conflict in Ukraine appears to be growing more serious by the day, the European bourses were sharply in reverse, our futures were pointing notably lower, and this was, after all, the start of the first full week of the often not so merry month of May.

And, on cue, the stock market did open lower, and notably so, with the Dow Jones Industrial Average off by 135 points very early in the session. However, after plunging early, based on disquieting economic news out of China (where the world's second largest economy saw its manufacturing output falter once again) and further political unrest in Ukraine, the market steadied itself after a half hour, or so, of trading, and started to pare its losses.

The catalyst for this suddenly more constructive appraisal was a better-than-expected report on U.S. non-manufacturing activity. On point, the Institute for Supply Management (ISM) reported that its key gauge of non-manufacturing, which covers the key services sector, rose strongly in April, registering a reading of 55.2. That was better than both the prior month and consensus expectations. It also was above the average reading for the past year. This solid metric, along with last week's favorable news on the companion manufacturing survey (also issued by the ISM) and an even more positive report, which was released Friday on job creation and the unemployment rate nationally, has encouraged the consensus view to emerge that growth in the current quarter could well ascend the 2.5% plateau. In the first quarter, by comparison, major disruptions from the weather and the need to draw down bloated inventories, had combined to limit growth to a scant 0.1%.

Now, armed by these more encouraging economic barometers and further boosted by much better-than-expected corporate earnings in the first quarter, the stock market has regained its momentum, and the leading averages are now within striking distance once again of all-time records, or at least 52-week highs. Meanwhile, the mid-morning snapback and subsequent strength during the afternoon, enabled most of the averages to post gains for the day. All told, by the close of trading, the Dow had added 18 points; the Standard and Poor's 500 Index was better by almost four points; and the NASDAQ was in the black to the tune of 14 points. Only the small-cap Russell 2000 Composite failed to join the parade, and that index, once off by some 14 points, ended the day just two-and-a-half points lower.

Looking at the overall picture, the U.S. equity market continues to be amazingly resilient, especially in light of the troubled international backdrop and the extended nature of valuations at this time domestically. It seems that the market just does not want to go down, with any selling being quickly met by so-called bargain hunting. That has been the pattern throughout the first four months this year, a period that notwithstanding the early economic ills at home and continuing troubles abroad has seen no worse than an overall standoff, with the key indexes now all near the unchanged mark thus far in 2014.        

As to the day ahead, the markets were narrowly mixed in Asia overnight, but are pressing lower in Europe so far this morning. On our shores, meantime, an early rise in the equity futures has been pared back and we probably are headed for a mixed-to-slightly lower opening when trading resumes in less than an hour from now.

Finally, in the lone note of interest in the pre-market hours, aside from a few earnings reports that have been issued already, was the release at 8:30 (EDT) of the international trade figures for March. Here, the government reported that the trade gap narrowed as expected. The smaller deficit, with a gap of $40.4 billion in March (which was right on consensus) versus a downwardly revised $41.9 billion in February (previously estimated at $42.3 billion), should help the nation's GDP increase nicely in the second quarter. The main impetus for the latest improvement was a surge in U.S. exports to end the first quarter. On the other hand, imports also rose, reaching their highest level since March of 2012. As to the impact on GDP growth, at this stage, we sense that the aggregate gain for the economy in the current quarter will be in the 2.5%-3.0% range. We would then expect growth to step up into the 3% area in the second half, as a more inclusive business expansion comes into view, with some gradual help from the now slumbering housing market. - Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.