WASHINGTON, May 29, 2013 — Wall Street’s taking a beating today, giving back much of what it gained yesterday. Volume seems to be increasing, with big sellers—likely hedge funds and mutual funds—are dumping utilities, telcos, and REITs like there’s no tomorrow, allegedly trading secure yields for the promise of capital gains in more volatile market sectors. Problem is, everything else, including energy, also seems to be tanking as well, indicating that after a long wait, we may finally be getting that “sell in May” action we’ve been waiting for all this month.
The Dow Jones industrial average reversed all of its gain from Tuesday, when it closed at a record high. The index is still on track to end higher for a sixth straight month and is up 16.4 percent this year.
The Standard & Poor’s 500 is on an even longer winning streak. The index is headed for a seventh consecutive month of increases, the longest winning streak since 2009. The S&P is up 15.5 percent this year, but it’s already down a whopping 17 points today at 1 p.m. EDT.
After those big gains, investors may be thinking that stocks are due for a pullback, said Sam Stovall, chief U.S. equity strategist for S&P Capital IQ. The S&P 500 has had a decline of at least five percent every year since the end of the World War II, Stovall said. That hasn’t happened yet in 2013.
“There’s a vacuum of catalysts to continue to push equities higher,” Stovall said. “They’re now trying to figure out: ‘Well, should I now take some profits and sit on the sidelines and then get back in?”
Though investors have been encouraged by positive signs on the economy, including sharp increases reported Tuesday in home prices and consumer confidence, they are also concerned that the Federal Reserve will start to ease back on its stimulus program as the economy improves.
Dividend stocks, particularly utilities and REITs are also being hurt, as bond vigilantes seem to be awakening after a long slumber. They drove the yield on the 10-year Treasury note down to 2.16 percent from 2.17 percent late Tuesday. The yield surged Tuesday to its highest level in 13 months as investors moved money out of bonds. The yield has risen sharply from 1.63 percent at the beginning of the month. This may not seem like much, but how much interest are you getting in your checking account these days.
The increase in bond yields in May has prompted investors to sell stocks, which pay high dividends, like utilities and phone companies. Those two groups, which many traders seeking income bought as an alternative to bonds, fell 2 percent Wednesday, the biggest declines of the 10 industry groups in the S&P 500. Those groups are also down the most so far this month: Utilities have lost 10 percent in May, phone companies 5.6 percent.
In commodities trading, the price of crude oil fell $1.50, or 1.6 percent, to $93.55. Gold rose $8, or 0.6 percent, to $1,386.80 an ounce. The dollar fell against the euro and the Japanese yen.
There were no major economic reports scheduled on Wednesday.
—AP contributed to this report
Today’s stock market picks and pans:
No picks today, just pans.
We no longer have any utilities in our portfolio and are holding one remaining telco, the recent IPO of West Corp. (WSTC). It’s been weakening, too, but we like its nearly 4% dividend and it’s holding up better than some of the better-known telecommunications companies. That said, we’ll dump it for a profit should we see further across the boards weakening.
On other fronts, Virginia pork and meat stalwart Smithfield Foods (SFD) surged $6.51, or 25 percent, to $32.49 after the company agreed to be acquired by meat processor Shuanghui International Holdings for approximately $4.72 billion. Somehow, this seems a little disconcerting, but unless another suitor shows up, the action in this stock is likely concluded.
Trapped for years in the dilemma created by the Obama Administration which essentially nationalized student loan action like they’re trying to do with everything else, onetime student loan purveyor—now servicer—Sallie Mae (SLM) jumped $1.04, or 4.6 percent, to $23.98, the biggest gain in the S&P 500 index. The company, which is formally named SLM Corp., announced a plan to split into two separate companies, one that manages student loans and a consumer banking business. We’ll steer clear of this one for now.
The market has suddenly got so short term oversold that we’re tempted to buy stuff, given that a good bit of this panic and carnage could end tomorrow when trading closes before a new trading month begins on Friday. But our indicators and those of the services we subscribe to have been looking wobbly and negative for quite some time. So perhaps we’ll continue to get cash-y and go to the sidelines, irritated at ourselves that we got a little greedy and have been hit somewhat by this nasty decline.
Stand aside, at least until COB tomorrow. Then we’ll see what happens next.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
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