Dow Jones Industrial Average Loses 18k (Again)

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Stocks were pushed lower Thursday to test support at the mid-April lows. Large-cap stocks remain mired in a trading range that goes back to early December as fears over the timing of the Federal Reserve’s first interest-rate hike since 2006 continues to weigh on the minds of traders and investors.

In the end, the Dow Jones Industrial Average lost 1.1%, the S&P 500 lost 1%, the Nasdaq Composite lost 1.6%, and the Russell 2000 lost 2.2%.

dow jones industrial average

The day’s trade seems to have been dominated by a surprise drop in the weekly jobless claims data, raising concerns that a tightening job market will push the Fed to tightening policy sooner than the market expects (futures pricing has been increasingly looking at no move on rates this year). Initial claims fell 34,000 to 262,000 — the best reading since April 2000 and well below the 290,000 that analysts were expecting.

As a result, precious metals and the related mining stocks were slammed, with gold off 2.3%.

Oil rose 1.8%, and thus energy stocks were a bright spot, with the 1.7% gain in the Market Vectors Oil Services ETF (NYSEARCA:OIH) pushing the total gain to Edge subscribers to nearly 10% since the position was recommended on April 6.

Treasury bonds reversed some of their recent weakness, with the iShares 20+ Year Treasury Bond (NYSEARCA:TLT) adding 0.2%.

Another hang-up has been weakness in the tech sector as the fallout from the “taptic engine” supply chain problems suffered by Apple Inc. (NASDAQ:AAPL) as it ramps up production of its Apple Watch pushed the stock down another 2.7%.

On account of its massive market cap, when AAPL has a bad day, pretty much everyone else does too.

Earnings disappointments pushed down Nokia Corporation (ADR) (NYSE:NOK), Yelp Inc (NYSE:YELP) and Baidu Inc (ADR) (NASDAQ:BIDU) in big ways. After the close, LinkedIn (NYSE:LNKD) was slammed 25%.

And the 25% drop in Twitter Inc (NYSE:TWTR) over the last three days, also on earnings, is still stinging.

twitter twtr stock

Looking ahead, it’s hard to see how the drop in jobless claims would lead to a sooner-than-expected rate hike when so much of the other data suggests the Fed needs to hold off.

The futures market is already increasingly pricing in no Fed rate hikes this year given the GDP growth slowdown, below-target inflation, a lack of wage inflation and problems the dollar’s newfound strength are causing. Thursday’s personal income and expenditures data suggests that April retail sales report will be soft — adding further evidence to the case that the economy is still too fragile.

Hints from Fed officials in the days to come that they’re in no hurry to start their first policy tightening campaign since 2004 — moving their expectations into alignment with where the futures market already is — could help stocks rebound in May, a month that’s got a bad rap (you know, “Sell in May and go away”) but actually turned in a positive performance in 2013 and 2014.

Will 2015 make it three in a row?

FCX

If this happens, materials and mining stocks should lead the way on the realization inflation will need to be much higher before the Fed pulls away the monetary punchbowl. The May $20 calls in Freeport McMoRan (NYSE:FCX) recommended to Edge Pro subscribers on April 23 are already up 275% in response.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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