Markets Slip as Institutional Investors Quietly Exit

Once again, US equity markets underwhelmed investors as two of the first three days of the week have been losing sessions for all three major equity market indices. The sloppy trade that has defined the previous 10 trading sessions has increasingly left market participants struggling for a reason to engage equities from the long side – and for good reason.

The old adage “Sell in May and go away” comes to mind.

The Nasdaq is 10% off its 52-week high while the S&P 500 and Dow Industrials have both slipped 4% from their peak. In yesterday’s trade, the Nasdaq fell 0.79%, the S&P 500 slipped 0.59% and the Dow Industrials closed off 0.56%.

A combination of mixed earnings results and mixed economic data fueled the continuation of the markets monotonous move lower.

For example, PCLN‘s Q1 results, often looked at as a bellwether of US consumer outlook, showcased a weaker forecast than expected. As a result the stock dropped roughly 7% and cast a wide net helping to drag the Nasdaq lower in the process.

While on the economic data front, the ADP private sector employment report reflected slowing hiring trends in the US economy last month, the slowest in nearly three years in fact. The ADP results for the month of April raise the stakes for the employment report due out on Friday morning. Consensus is calling for a gain 200k for the month and a drop in the official unemployment rate to 4.9%. Nearly as important will be the Average Hourly Earnings, Average Work Week and Participation Rate components of the report. Any hint of inflation in the wage component of the report would be welcome. Once again investors would ideally like to see sustainable growth in employment that meshes with the interest rate narrative that the Fed has been broadcasting – gradual, shallow.

How I see it:

I would not at all be surprised to see more weak price action this week coupled with a jolt of renewed volatility

With the continued underperformance of financials after a relatively solid Q1, as per earnings, coupled with weak price action in the broader market, mixed economic data and technically challenged charts for the major indices, I will reiterate my guideposts from Monday morning’s note.

flickr photo: @thomashawk