Some 115 S&P 500 stocks had their 14-day relative-strength index exceeding 70 yesterday, the most since May 21, Bloomberg data show. RSI measures the degree to which gains and losses outpace each other and some analysts who watch charts to predict market moves consider a reading over 70 as indicating the stock has risen too far too fast.
“What were we supposed to do for an encore after a day like yesterday?” said Donald Selkin, who helps manage about $3 billion of assets as the New York-based chief market strategist at National Securities Corp. “It had to let some air out.”
Three rounds of bond purchases by the Fed, coupled with improving earnings and economic growth, has helped propel the S&P 500 up more than 150% from its bear-market low in 2009. Speculation about the Fed’s monthly bond purchases has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.
Fed officials said this week the labor market has shown “improvement,” while a report showed the U.S. economy grew more than projected in the second quarter. The central bank may begin tapering the pace of its asset purchases in September, according to a growing number of economists surveyed by Bloomberg from July 18 to July 22.
“The market will read today’s jobs report as part of the mixed data that’s shaping the Fed’s policy,” Stephen Wood, the New York-based chief market strategist who helps oversee about $237 billion at Russell Investments. “The pattern of economic growth looks more lumpy coming into this quarter. The market is going to turn its focus back to the earnings season and look at the revenue guidance with a microscope.”
Chevron and Berkshire Hathaway Inc. are among nine S&P 500 companies reporting results today. Of the 390 companies in the gauge to have already reported quarterly earnings, 74% have exceeded analysts’ profit estimates and 56% have beaten sales projections, data compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index, or VIX, dropped 6% to 12.16 today. The equity volatility gauge reached its highest level this year in June and has since fallen 41%.
Six of the 10 main industry groups in the S&P 500 fell, with energy, utility and consumer-staples companies losing at least 0.3% to lead declines.
Chevron slipped 2.4% to $123.43 for the biggest retreat in the Dow. The world’s second-largest energy company by market value missed analysts’ estimates as crude oil prices and production fell.
Eaton Corp. dropped 5.4% to $66.17. The equipment maker reduced the high end of its forecast, saying it expects to earn no more than $4.25 a share this year. Analysts projected $4.33, on average.