After a more than 1% move higher in the first two days of trading this week in the S&P 500 the market took a breather today. There was not nearly as much buying today as on Monday and Tuesday but selling did not reach heavy levels either. The markets sold off in the last half hour of the day to close on their lows. The S&P 500 closed off 0.76% and the Dow was lower by 0.74%.
Clearly the macro issue, the fiscal cliff, was the driver again today. It is important to note that the risk on sectors like semiconductors, transports and banks outperformed risk-averse sectors like healthcare, staples and telecom.
Technology is benefiting from the positive earnings release issued by Oracle after the close yesterday. Financials continue to be helped by the Goldman Sachs’ conference on the sector held last week. Airlines continue to lead the transports higher. Transports were also helped by GM’s announcement that they will be buying back stock for the U.S. government.
Boehner’s Plan B is not viewed as a solution as it will not pass in the House and President Obama will veto it if it gets that far. This plan is just taking away time to do real negotiations. With the absence of any fiscal developments and the strong rally over the past week it is surprising that the market acted so well for the majority of the day. The general consensus now is not to react to every comment regarding fiscal cliff negotiations and just take the stance that there will be a resolution by year end.
Treasuries gained today after the heavy selling over the past few days. The change was small after housing data was mixed and building permit data failed to move the market higher. Today's small advance dropped the 10-yr yield off yesterday's two-month high, pushing it back down to 1.80%. Elsewhere, the 30-yr yield eased back below 3.00% as its first two-day close above the level since the announcement of ‘Operation Twist'.
Commodities were mostly weaker with precious metals, copper, grains and natural gas trading lower.
Source: PFS Group
