Is Friday’s Fear Already Spooking Markets?

After getting off to a good start, stocks ran out of gas early Tuesday afternoon.

The Census Bureau’s slightly better-than-expected factory orders report for May got stocks off to a good start on Tuesday morning. Unfortunately, after lunch hour, the major stock indices began to fade. Speculation on the cause of the fall focused on investor apprehension about Friday’s release of the June non-farm payrolls report from the Bureau of Labor Statistics. Many prognosticators are looking toward a disappointing report.

On the other hand, fans of the quantitative easing program should be pleased by a downbeat report, as it would forestall any “tapering” of the Fed’s bond-buying program. At a speech in Fairfield, Connecticut on Tuesday, FOMC Vice-Chair William Dudley emphasized that any changes to the quantitative easing program will be based on the economic outlook, rather than the calendar.

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 48 points to finish Tuesday’s trading session at 14,932 for a 0.28 percent decline. The S&P 500 (NYSEARCA:SPY) dipped 0.05 percent to close at 1,614. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.08 percent to finish at 2,929. The Russell 2000 (NYSEARCA:IWM) slipped 0.04 percent to end the day at 989.

In other major markets, oil (NYSEARCA:USO) soared 1.56 percent to close at $35.21. On London’s ICE Futures Europe Exchange, August futures for Brent crude oil advanced by 86 cents, or 0.84 percent, to $103.86/bbl. (NYSEARCA:BNO). August Gold Futures advanced by $14.60, or 1.16 percent, to $1,241.10 per ounce (NYSEARCA:GLD). Transports backed into a ditch on Tuesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) declining 0.58 percent.

The Japanese stock market extended its rally to a fourth consecutive day on Tuesday as the yen remained weaker than 99.5 per dollar throughout the session, dropping as low as 99.91 per dollar. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average soared 1.78 percent to 14,098 (NYSEARCA:EWJ).

In China, setbacks for the financial sector did not prevent stocks from extending their winning streak for a third consecutive day on the Shanghai Stock Exchange. China Daily reported that a deposit insurance program is in the works to protect individual as well as institutional depositors. The Shanghai Composite Index climbed 0.57 percent to close at 2,006 (NYSEARCA:FXI). On the other hand, in Hong Kong the weak financial sector closed-out a three-day winning streak when the stock market re-opened on Tuesday after the holiday weekend. Hong Kong’s Hang Seng Index declined 0.70 percent to finish the session at 20,658 (NYSEARCA:EWH).

European stocks gave up most of Monday’s gains on Tuesday, in the absence of any economic news to bolster investor enthusiasm. What began as a day of profit-taking resulted in more significant declines as the financial sector put a drag on the market (NYSEARCA:VGK).

Although Monday’s PMI reports brought some hope to the market, optimism began to fade as investors faced-up to the fact that June’s manufacturing PMI readings for all Eurozone nations except Ireland and Spain were in the range of contraction. As of 8:59 EDT the Euro STOXX 50 Index was down 0.88 percent to 2,599 – remaining below its 200-day moving average of 2,633. Its Relative Strength Index is 44.64 (NYSEARCA:FEZ). The FTSE 100 Index dropped 0.51 percent to 6,275 (NYSEARCA:EWU).

The German DAX Index sank 1.22 percent to 7,886 (NYSEARCA:EWG). France’s CAC 40 Index fell 0.71 percent to 3,740 (NYSEARCA:EWQ). Spain’s IBEX 35 Index declined 0.18 percent to 7,892 (NYSEARCA:EWP). Italy’s FTSE MIB Index fell 0.66 percent to 15,357 (NYSEARCA:EWI).

Technical indicators reveal that the S&P 500 remains below its 50-day moving average of 1,623 after closing at 1,614. The 50-day MA continues to provide significant overhead resistance. As a result, bears are anticipating a decline to the 200-day moving average of 1512. Its Relative Strength Index dipped from 49.35 to 49.10. Although the MACD remains below the zero line, it is poised to cross above the signal line. If it does so, the move would suggest a likely advance.

For Tuesday, the sectors were split 5 to 4, with 5 in positive territory. The energy sector made the biggest gain, with a not-so-big advance of 0.22 percent. The industrial sector took the hardest hit, falling 1.07 percent.

Consumer Discretionary (NYSEARCA:XLY): +0.18 percent
Technology (NYSEARCA:XLK): +0.16 percent
Industrials (NYSEARCA:XLI): -1.07 percent
Materials (NYSEARCA:XLB): -0.31 percent
Energy (NYSEARCA:XLE): +0.22 percent
Financials (NYSEARCA:XLF): +0.10 percent
Utilities (NYSEARCA:XLU): -0.03 percent
Health Care (NYSEARCA:XLV): -0.21 percent
Consumer Staples (NYSEARCA:XLP): +0.13 percent

Bottom line: Although the stock market responded well to the slightly better-than-expected May factory orders report, the major stock indices began to fade in the early afternoon as anxiety concerning Friday’s release of the June non-farm payrolls report began to build.

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

Don’t Miss: 5 Sequester Predictions That Didn’t Come True.

More from The Cheat Sheet