Here’s Why the Stock Market Quietened Down

Disappointing economic news from the Chicago Federal Reserve failed to prevent the major stock indices from reaching new record intraday highs.

Unpleasant economic news failed to dampen investor enthusiasm on Monday. The Chicago Fed National Activity Index, which is a composite of a number of indicators, dropped to negative 0.53 in April from negative 0.23 in March. The bad news failed to restrain investors from sending the major stock indices to new record intraday highs, although by the closing bell only the Russell 2000 remained in record territory.

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 19 points to finish Monday’s trading session at 15,335 for a 0.12-percent decline. The Dow reached a new record intraday high of 15,391.84. The S&P 500 (NYSEARCA:SPY) finished Monday’s session with a 0.07-percent dip to 1,666. The S&P reached a new record intraday high of 1,672.84. The big question at this point is whether the S&P 500 will reach 1,700.

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The Nasdaq 100 (NASDAQ:QQQ) declined 0.26 percent to 3,020. The Russell 2000 (NYSEARCA:IWM) advanced 0.17 percent to a new record-high close of 997.98 after breaking through the 1,000 barrier to hit an intraday record high of 1,001.50. In other major markets, oil (NYSEARCA:USO) advanced by 0.67 percent to close at $34.44.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by 18 cents, or 0.17 percent, to $104.82/bbl. (NYSEARCA:BNO). June gold futures advanced by $28.10, or 2.06 percent, to $1,392.80 per ounce (NYSEARCA:GLD). Transports stalled-out on Monday, with the Dow Jones Transportation Index (NYSEARCA:IYT) declining 0.67 percent.

European stocks had another strong day on Monday as a result of Morgan Stanley’s bullish outlook on the European automotive sector (NYSEARCA:VGK). The firm raised its recommendation on the region’s automobile manufacturers from “neutral” to “overweight” (NYSEARCA:VGK). The Euro STOXX 50 Index finished Monday’s trading session with a 0.23-percent advance to 2,824 — remaining above its 50-day moving average of 2,688 (NYSEARCA:FEZ).

In Japan, stocks advanced on rumors that the nation will restart its nuclear power plants, raising investor confidence that the nation will no longer require expensive fuel imports, which have become more costly due to the weakened yen. The Nikkei 225 Stock Average jumped 1.47 percent to 15,360 (NYSEARCA:EWJ).

In China, stocks advanced on volume in excess of 50 percent of the 30-day average as the government continued to institute reforms in accordance with Premier Li Keqiang’s efforts to cut administrative red tape. Monday’s announcement that projects for airports and gas fields will no longer need pre-approval boosted investor enthusiasm. The Shanghai Composite Index jumped 0.77 percent to 2,299 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index skyrocketed 1.78 percent to 23,493 (NYSEARCA:EWH).

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Technical indicators reveal that the S&P 500 remains far above its 50-day moving average of 1,584 after closing at 1,666.26 — as bears continue to hope that we are watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index dipped from 72.24 to 71.85 — remaining above the threshold level of 70, which most investors consider an “overbought” signal. Both the MACD and the signal line continue soaring above the zero line, suggesting the likelihood of a further advance.

For the day, sectors were evenly mixed, with energy advancing beyond one percent, while consumer staples declined by just over one percent.

Consumer Discretionary (NYSEARCA:XLY): -0.30 percent

Technology (NYSEARCA:XLK): (unchanged)

Industrials (NYSEARCA:XLI): +0.29 percent

Materials (NYSEARCA:XLB): +0.10 percent

Energy (NYSEARCA:XLE): +1.41 percent

Financials (NYSEARCA:XLF): +0.20 percent

Utilities (NYSEARCA:XLU): -0.50 percent

Health Care (NYSEARCA:XLV): -0.69 percent

Consumer Staples (NYSEARCA:XLP): -1.03 percent

Bottom line: The downbeat Chicago Fed National Activity Index dampened animal spirits on Monday as the Dow, the S&P 500, and the Russell 2000 indices reached new record intraday highs but closed flat to red on the day.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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