Taper Fear Meme Strikes: Stocks Retreat
In Tuesday’s market action, major U.S. markets were down, while Tesla (NASDAQ:TSLA) jumped more than 16 percent.
If you check around at all of the financial websites, you will not find a satisfactory explanation for Tuesday’s stock market selloff. After stocks declined for the third consecutive day, commentators struggled for explanations. Not surprisingly, some sources fell back on the old “taper fear” meme, with the FOMC meeting set for December 17-18 and another press conference with Dr. Bernanke on December 18.
Nevertheless, most analysts have concluded that the Fed’s new mantra, “tapering is not tightening” has reduced the fear factor because investors now realize that the federal funds rate will not be increased when the Fed reduces its bond purchases.
The most logical explanation for the pullback is that investors are alert to the recent commentary suggesting that a serious risk of a stock market bubble is looming. As economist Robert Shiller recently observed that he does not currently see a bubble mentality, the recent stock market retreat is probably the best verification of that point.
Meanwhile, Tesla was on fire again — although this time it worked to the company’s advantage. Tesla shares skyrocketed 16.53 percent to $144.70 on Tuesday after the German Federal Motor Transport Authority concluded that the recent Tesla fires were not caused by design or manufacturing defects. Perhaps it’s time for the German Federal Motor Transport Authority to take a closer look at the Porsche Carrera GT.
The Dow Jones Industrial Average (NYSEARCA:DIA) lost 94 points to finish Tuesday’s trading session at 15,914 for a 0.59 percent decline. The S&P 500 (NYSEARCA:SPY) retreated 0.32 percent to close at 1,795. The Nasdaq 100 (NASDAQ:QQQ) dipped 0.05 percent to finish at 3,479. The Russell 2000 (NYSEARCA:IWM) declined 0.47 percent to end the day at 1,123.
In other major markets, oil (NYSEARCA:USO) skyrocketed 2.46 percent to close at $34.51. On London’s ICE Futures Europe Exchange, January futures for Brent crude oil advanced $1.30 (1.17 percent) to $112.75/bbl. (NYSEARCA:BNO). February gold futures advanced $1.10 (0.09 percent) to $1,223.00 per ounce (NYSEARCA:GLD). Transports took on water during Tuesday’s trading session, with the Dow Jones Transportation Average (NYSEARCA:IYT) sinking 0.99 percent.
In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks made a strong advance as the yen weakened to a six-month low of 103.38 per dollar during Tuesday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). Mazda shares jumped 1.66 percent on the Tokyo Stock Exchange. The Nikkei 225 Stock Average climbed 0.60 percent to 15,749 (NYSEARCA:EWJ).
Stocks advanced in mainland China after the People’s Bank of China pumped money into the financial system by way of seven-day reverse repurchase agreements. The move pushed money market rates lower for a third consecutive day. In Hong Kong, stock prices retreated as a round of profit-taking followed Monday’s close of the Hang Seng Index at its highest level since April of 2011.
The Shanghai Composite Index surged 0.69 percent to 2,222 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.53 percent to end the day at 23,910 (NYSEARCA:EWH).
Stocks took a hard fall in Europe, after Credit Suisse cut its rating on French stocks to underweight. Benchmark indices dropped in all 18 Western European stock markets. The Euro STOXX 50 Index sank 2.06 percent to 3,013.88 – remaining a hair’s breadth above its 50-day moving average of 3,013.38. Its Relative Strength Index is 43.26 (NYSEARCA:FEZ).
On Tuesday, four sectors finished in positive territory and five sectors finished in the red. The materials sector took the hardest hit, falling 1.18 percent.
Consumer Discretionary (NYSEARCA:XLY): -0.95 percent
Technology: (NYSEARCA:XLK): +0.23 percent
Industrials (NYSEARCA:XLI): -0.86 percent
Materials: (NYSEARCA:XLB): -1.18 percent
Energy (NYSEARCA:XLE): +0.24 percent
Financials: (NYSEARCA:XLF): -1.02 percent
Utilities (NYSEARCA:XLU): +0.50 percent
Health Care: (NYSEARCA:XLV): -0.87 percent
Consumer Staples (NYSEARCA:XLP): +0.49 percent
Bottom line: Stocks retreated for the third consecutive day on Tuesday, as investors remained cautious after a streak of record-high stock market sessions.
John Nyaradi is the author of The ETF Investing Premium Newsletter.
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