By Matthew Kochen,
Money & Investing Writer
A recent rally in the U.S. stock market saw its end come on Monday with all the major indices recording losses.
The Dow Jones Industrial Average closed the day down 55.75 points, or 0.31 percent, the Nasdaq Composite dropped 22.75 points, or 0.46 percent. The S&P 500 fell 6.65 points, or 0.32 percent.
Adam Sarhan, the chief executive of Sarhan Capital describes the faltering of the rally as, “What we’re seeing is some classic bullish fatigue setting in. Oil and other commodities are all in pullback mode …and investors are very focused on commodities because they led on the way up.”
Before Monday’s loss, the equity market was at its highest thus far into 2016.
Even at their lowered numbers, the major indices are still up over 12 percent from their trough on Feb. 11.
A number of factors can be seen to have contributed to this movement. Losses in industrials and materials, specifically oil, outweighed gains in the healthcare industry.
Crude prices fell 3 percent as a potential global agreement to freeze output level is being mulled. Members and nonmembers of the Organization of the Petroleum Exporting Countries (OPEC) are meeting on April 17 to discuss lowering output in order to raise the price of oil.
Hope for that deal being completed is fading among analysts as the deal is contingent on an unlikely Iran agreeing to lower their production, which has continued to increase in recent months.
Reaching the deal is skeptical already, but the effectiveness if it were to be completed is undermined by Russia which hit a record high in March for oil output at 10.912 million barrels per day.
Compounding on oil dragging down the market, investors are turning their attention towards corporate financial reports as earning season approaches.
After an unsteady first quarter, the outlook on earnings is one of pessimism. The Federal Reserve also made news with new moves in limiting corporate inversion, a tax-avoiding technique of moving a firm to another country and under their more favorable tax rates and laws.
What would have been the largest inversion ever and second-largest merger between Allergan Plc (NYSE: AGN) and Pfizer (NYSE: PFE) was killed by this, dealing their stocks a sharp decrease.
The Fed continues to hold the stock market eagerly waiting for decision of when to raise interest rates.
The Fed has forecasted two increases this year, but not much faith is being put in that by investors. There is more confidence among investors in only one raise this year according to the CME Group’s FedWatch program.
The Boston Fed President Eric Rosengren caught many by surprise with comments made at a Monday speech indicating a rate-hike may come sooner than the market is expecting.
All these moves may be bad for investors in the very near short term, but experts do not see it as completely negative, but rather as a necessary reset.
Colin Cieszynski, chief market strategist at CMC Markets says, “The market is getting close to where it topped last year, so it could be running into a ceiling. The big question is whether it will go sideways from here or it will see a sharp correction”.
This sideways trading environment is typical of what you’d see in the first week of a new quarter according to J.J. Kinahan, chief strategist at TD Ameritrade.
A version of this article appeared in the Tuesday, April 12th print edition.
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