Good day! Even though it just began, this week so far has been the weakest one for the major U.S. indices since mid-March. The market gave us clues for this weakness heading into last week and started to follow-through mid-week. The strongest selling, however, has been over the past two days for many sectors, including those tied to gold and oil.
The index futures fell further after Monday's close into midnight on the heels of disappointing earnings from Alcoa (AA) to kick off the first-quarter earnings season. Alcoa (AA) (-6.02%) matched earnings estimates, but fell short on revenue. Alcoa (AA) shares ended lower by more than 6% on Tuesday and was the Dow's ($DJI) biggest loser.
Dow Jones Industrial Average (Figure 1)
Heading into Tuesday, my bias was that the "overall weakness in the market [would] still be the predominant theme," because "The larger daily time frame still has more room that it can move." The indices were extended on the downside into Monday's close, but "a slower recovery off the afterhours/premarket lows [would] favor the bears, while an increase in the volume on downside action [would] help confirm it."
The index futures did, in fact, consolidate afterhours and into the early morning with a more gradual reaction off Monday afternoon's support. This slower recovery showed a lack of interest on the part of the bulls, including those overseas.
The news abroad was not very encouraging either. Japanese regulators raised the damage level for the Fukushima Daiichi nuclear power plant to a level akin to the 1986 Chernobyl disaster. Previously at 5, the level was increased to a 7, which is the highest level possible on the International Atomic Energy Agency's International Nuclear and Radiological Event Scale.
The nuclear plant had been damaged as a result of the massive earthquake and tsunami that hit Japan last month. While the headline is dramatic and eye-catching, officials quickly point out that the events are still quite different and that the upgrade is not a projection of things to come, but rather the events that had already unfolded at the plant. The radiation leak to date has been estimated at 10-15% of the amount seen at Chernobyl. Nevertheless, the evacuation area was widened on Monday.
S&P 500 (Figure 2)
After consolidating throughout the morning, the index futures first began to give way to further selling coming out of the 8:30 a.m. ET economic reports, which confirmed fears that the economic recovery has slowed. According to the Commerce Department, imports fell 1.7%, while exports fell 1.4% in February. This included signs that demand for oil had eased, which put downward pressure on oil prices on Tuesday.
Import prices in March were up 2.7% in March, larger due to higher oil prices. Excluding oil, prices were up 0.6%. Meanwhile, the trade deficit, which is the difference between imports and exports, narrowed to $45.8 billion in February. This was a decline of 1.6% and was less than anticipated.