Another frustrating day for the broad market, as we ended right near the lows for the day. Energy stocks did what they did for most of this quarter: go up. Financials also did what they have done for 80 percent of this quarter: sell into even the most modest of two-day rallies, despite a stellar report from Goldman Sachs.
Speaking of Goldman: a report that banks would have to raise an additional $65 billion to cover losses did not help the financials.
Many regional banks like SunTrust (down 8.6 percent), Nat City(down 6.5 percent, Fifth Third (down 6 percent) were especially weak.
How long can this trade (long energy & materials, sell rallies in financials) work? Bulls think it can go on for some time; bears believe we are in a blow-off on energy and materials and it is only working right now because it is the end of the quarter, but will soon stop.
As for tech, there is considerable anxiety there as well, particularly since techs have outperformed the broader market in the past month; earnings are very back-end loaded (meaning much of the earnings are expected to be in the second half of the year), so as we enter earnings pre-announcement season the anxiety is rising.
In the short term, the markets will be influenced by the quadruple witching expiration this Friday (the quarterly expiration of stock and index futures and options), as well as by FedEx's earnings report tomorrow.
The issue with FedEx, of course, is jet fuel prices and to what extent the weak economy is reducing demand for freight services. The company last provided guidance on May 9, 2008, an eternity ago.
Finally, solar stocks weakened late in the day, I am hearing that the Senate has blocked tax breaks for wind and solar energy.
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