Market Overview

Despite S&P 500's New High, Stocks Face Challenges

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Stocks ended the first quarter with a big rally; the Standard & Poor's 500 Index actually closed -- barely -- at a new high. The fact is, however, that the market overall was a muddle -- and likely to stay that way. And second quarters are often dicey.

On the Surface

The S&P 500 finished up nearly 15 points to 1,872.34 on Monday, breaking its old record of 1,872.25, set on March 18. It's up 1.3 percent for the year. The Nasdaq Composite rose 43 points, or one percent, to 4,199 and is sporting a small gain for the year, 0.5 percent. The Dow Jones industrials, up 135 points (0.8 percent) to 16,458, are still down slightly on the year -- about 0.7 percent.

The one-day gains for the Index, the Dow, and the Nasdaq Composite were their best in two weeks. The S&P 500 and the Dow ended March with their second monthly gains in a row, up 0.7 percent and 0.8 percent, respectively. But the Nasdaq fell 2.5 percent for the month and for the second time in three months.

The market overall gained support from energy and utility stocks. About 288 S&P 500 stocks were higher, led by First Solar (NYSE: FSLR) and steel-maker Allegheny Technologies Inc. (NYSE: ATI), up 22 percent and 18.6 percent, respectively.

So much for the surface numbers. This is one of those markets where you must dig through the numbers to get a clear understanding of what happened. March and the quarter didn't treat all stocks alike.

Digging Into The Numbers

Given the strong March of S&P 500 and the Dow, how to explain the Nasdaq's March fall? The short answer is that a lot of momentum stocks ran out of gas and fell, often heavily.

Netflix Inc. (NASDAQ: NFLX) fell $6.84, or 1.9 percent, to $352.03. For the month, the shares stumbled 21 percent; they dropped 4.4 percent for the quarter. Amazon.com Inc. (NASDAQ: AMZN) closed down 0.5 percent to 336.52. It fell 6.1 percent for the month and 15.6 percent for the quarter. Google Inc. (NASDAQ: GOOG) fell 8.3 percent for the month and 0.6 percent for the quarter. It at least ended the month as the world's thirst most valuable company. Staples (Nasdaq: SPLS) has no similar silver lining for its lackluster performance.

See also: Emerging Market ETFs Show Signs of Life

Biotechnology stocks suffered a particularly nasty beating in part because they were among the hottest of momentum plays in 2013 and the first two months of this year.

The NYSE ARCA Biotechnology Index fell 8.1 percent. Two exchange-traded funds fell more: The iShares Nasdaq Biotechnology Index ETF (NASDAQ: IBB) fell 10.6 percent. The SPDR S&P Biotech ETF (NYSE: XBI) dropped 12.9 percent. That was after rising 16.6 percent and 25.8 percent, respectively, in the first two months of the year. Alexion Pharmaceuticals (NASDAQ: ALXN) fell 18 from its intraday high of $185.43 on Feb. 27. Gilead Sciences Inc. (NASDAQ: GILD) was an S&P 500 laggard.

There were exceptions to the Nasdaq damage. The most visible winner may have been Microsoft Corp. (Nasdaq: MSFT), up seven percent for the month and 9.6 percent for the quarter. Investors are optimistic with Satya Nadella replacing Steve Ballmer as CEO. Microsoft was the second-best Dow performer in March after AT&T Corp. (NYSE: T) and second-best for the quarter after Pfizer Inc. (NYSE: PFE).

Second Quarter Omens

What's ahead depends on the economy's performance and, probably to a larger-than-expected degree on geopolitical concerns.

According to the Stock Traders Almanac, April is the best month for Dow stocks and second-best for S&P 500 stocks. It's the third-best month for Nasdaq stocks. But April tends to tail off when tax season is done and investors have made annual Individual Retirement Account contributions for 2013. Then, comes May, one of the weakest months of the year and traditionally the start of the year's worst six months.

The geopolitical risk comes largely from the Russia, Ukraine and what happens to the Crimean region of Ukraine. Retail gasoline prices moved up 7.1 percent in the quarter, according to AAA's Daily Fuel Gauge Report as crude oil moved up 3.2 percent. And there will be continued worries about the health of China.Those concerns alone pushed a number of global investors to move money into the U.S. dollar. Gold fell nearly 2.9 percent for the month to $1,283.80 an ounce but is still up 6.8 percent for the year.

Should you worry about the Federal Reserve and interest rates? Probably not. Janet Yellen, the central bank's new chairman, has been signaling interest rates will remain low for the balance of 2014 and into 2015. The 10-year Treasury yield was 2.723 percent on Monday, up slightly from Friday.

A correction is possible. Stocks often fall seven percent to 10 percent during the course of any year. A big ugly correction, like the crash in 2008, is probably not likely without a real catalyst such as a major and abrupt deterioration of the economy.

Posted-In: News Economics Federal Reserve Pre-Market Outlook After-Hours Center Markets ETFs Best of Benzinga

 

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