Stocks are facing several issues on Wednesday.
Reports that Larry Kudlow will be appointed National Economic Council director are certainly a positive for those who believe the CNBC contributor would be a moderating influence on President Donald Trump, but they are not moving the stock market. That's a sign that traders are not convinced that the appointment would represent a major change in trade policy.
Concerns about economic growth along with quarter-end profit taking are suddenly emerging to spook traders.
Stocks have risen because of the prevailing paradigm of continuing global growth, record earnings and increased buybacks brought on by tax cuts and repatriation.
Anything that attacks this paradigm is a problem for the markets, particularly since stocks are again within 3 percent of their historic highs.
On Wednesday, we see:
- Weak retail sales equals GDP downward revision: The February retail sales report was puzzling, with autos, furniture and gasoline notably weak. As a result, several market watchers cut forecasts for first quarter GDP growth: J.P Morgan to 2 percent from 2.5 percent, Goldman Sachs to 1.8 percent from 2 percent, and the Atlanta Federal Reserve to 1.9 percent from 2.5 percent.
- Trade war issues: Big industrials, particularly aerospace/defense names like Boeing, Raytheon and Northrup Grumman, have had big moves this quarter, but a trade war or a massive dispute with China could be a major issue, and these big Industrial names have moved up and down almost in lockstep with the tariff story.
- Muted inflation concerns equal yield curve flattening: Inflation was a major factor in the early February sell-off, but in the last four trading days three reports have indicated inflation is fairly tame: wage growth from the jobs report, the consumer price index and the producer price index. As a result, the yield curve has flattened and the 10-year yield is down 10 basis points in the last few days. In theory, this is a good sign. However, it has put pressure on a market leader — banks — and old bond watchers are muttering that this is an early sign the bond market does not necessarily believe that economic growth will be as robust as market bulls think it will be.
- End of quarter approaching so investors lightening up on winners: The market leaders this quarter have been regional banks, aerospace/defense, and semiconductors, all of which have sold off this week. This is not surprising, given huge moves in stocks like Marvell Technology (up 23 percent this year), Advanced Micro Devices (up 11 percent), Microchip Technology (up 11 percent) and Xilinx (up 12 percent). But the lightening up on positions is happening a bit early (still two weeks left in the quarter), a sign that the momentum guys are even more nervous than usual.