Stocks Take a Step Backward

While the final tally on this week’s market will show stocks have spent the days since March 28 in a slight ebb and flow that seems to signify little, one can’t help wondering if the 2011 high for stocks, which seemed so in reach on Thursday, hasn’t just become more difficult to surpass. Not that Friday’s 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 can’t 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 it’s also silly to think no tipping point exists at which stocks won’t 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 isn’t true. It’s just that it’s being felt most acutely by the sector you’d expect. The transportation index is now down 2.6% in April. It’s also that the hit to transportation stocks wasn’t anything that couldn’t be overcome with the continued momentum-driven strength in small-caps and large-cap tech stocks. But here’s 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 it’s now about 4% from 2011 highs set in mid-February. With the rally’s fuel looking spent, it may take earnings season to provide a significant lift from here.
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