Stocks Take a Step Backward

While the final tally on this weeks market will show stocks have spent the days
since March 28 in a slight ebb and flow that seems to signify little, one cant
help wondering if the 2011 high for stocks, which seemed so in reach on
Thursday, hasnt just become more difficult to surpass. Not that Fridays session
qualifies, really, as much of a selloff. Stocks did give back a few points, and
closed at their lowest level since March 30, but they are barely more than 1%
away from their highs of the year. The Dow Jones Industrial Average lost 29
points to 12,380, the Nasdaq fell 16 points to 2780 and the S&P 500 lost 5
points to 1328. Yet a thoughtful bull cant help but notice the increasingly
diminishing energy of the sectors that were largely responsible for the recent
three-week rally and that were particularly significant underperformers on
Friday. And what to make of a two-year high in oil prices (not to mention yet
another all-time and 31-year-high in gold and silver?) The breakdown in the
inverse relationship between crude oil and stock prices this week was puzzling
to some and confidence-building to others, but its also silly to think no
tipping point exists at which stocks wont fall in the face of higher oil prices.
That would lead one to believe that a price of nearly $113 a barrel has
brought that point closer than it was. It took no convincing of holders of
transportation stocks, which fell 1.7% (as per the Dow Jones Transportation
Index). Airlines, in particular, took a beating: JetBlue (NASDAQ: JBLU ) fell
4.4%, United Continental (NYSE: UAL ) was off 5.7%, and AMR Corp. (NYSE: AMR ),
parent of American Airlines, lost 4.5%. The thing about higher oil prices not
affecting stocks is that it isnt true. Its just that its being felt most acutely
by the sector youd expect. The transportation index is now down 2.6% in April.
Its also that the hit to transportation stocks wasnt anything that couldnt be
overcome with the continued momentum-driven strength in small-caps and large-cap
tech stocks. But heres where we are now: the Russell 2000 Index fell 1% on
Friday, and has now dropped 1.6% in two days. The Nasdaq 100 fell 0.5% to its
lowest close since March 28. And we continue to note the nonconfirmation of the
financial selector. The SPDR Financial Select Sector (NYSE: XLF )
exchange-traded fund has fallen 1.3% since Wednesday, and its now about 4% from
2011 highs set in mid-February. With the rallys fuel looking spent, it may take
earnings season to provide a significant lift from here.