This one is not going to be so easy for the bulls to dismiss. Although trading volume remained muted, the broad-based nature of today's declines and inability of major averages to sustain any forward momentum proved troubling to all but the most diehard optimists.
Dow Jones Industrial Average
fell 1.2% to 10,105.71, the
fell 1.1% to 1079.88, and the
lost 2.2% to 1664.18.
The price of the benchmark 10-year Treasury note rose 12/32 to 97 29/32, its yield falling to 5.15%.
Elsewhere, the Russell 2000 fell 1.5% to 495.56, and its latest trek below 500 has some observers wondering again if the end of small-cap's hegemony has arrived, as
reported earlier. (The S&P SmallCap 600 fell 1.6%, and the S&P MidCap 400 shed 1.4% today.)
Bulls could take some solace in the absence of heavy volume during today's selloff, as well as the fact the S&P 500 remained above technical support at around 1075. Still, volume on both exchanges expanded from yesterday's
light-volume session, as did the spread between losing and winning stocks.
trading, 1.2 billion shares traded, while declining stocks led advancers 20 to 11. In over-the-counter trading, 1.5 billion shares traded, and losers led gainers 11 to 6.
A number of factors contributed to the weakness in equities today, but the most oft-cited one was concerns about the possibility of renewed terrorist attacks. Several government officials, including Federal Bureau of Investigation chief Robert Mueller and Homeland Security Director Tom Ridge, reiterated Vice President Cheney's weekend warning about the near inevitability of future terrorist attacks. The FBI even issued specific warnings about New York City landmarks being potential targets during the coming Memorial Day Weekend.
To some, the warnings merely provided an excuse for selling (still) overvalued stocks. Cynics noted the threats of terrorist attacks never went away.
"We've been on a state of alert since Sept. 11," said Bob Basel, director of listed trading at Salomon Smith Barney. "Just because
terrorism is a little more at the forefront of the news maybe reawakens people, but I don't think anything's changed since Sept. 11," most especially in Manhattan.
Beyond concerns about terrorism, Basel noted the heavy selling in
, which fell 7.4% despite reporting better-than-expected first-quarter earnings.
However, Home Depot's forward outlook amounted to a reiteration of prior guidance, which proved insufficient to those expecting blowout numbers and a rosy outlook from the home-improvement giant. Such expectations were "built into" Home Depot shares after rumors of a big quarter spread last week, and heightened after the stellar results from
yesterday, Basel said.
The market also failed to respond to the presumably goods news of a
and New York Attorney General Eliot Spitzer. Merrill rose 1% but the Amex Broker/Dealer Index fell 1.2%.
Merrill Lynch agreed to pay a fine of $100 million to settle allegations that it issued overly bullish research in order to win lucrative banking deals. Merrill also agreed to separate research analysts' compensation from investment banking and said it would form a new stock rating committee that will review all analyst actions.
Investors' cumulative decision to focus on terrorist threats -- or the possible escalation of violence between India and Pakistan after the assassination of a Kashmiri separatist leader -- rather than Home Depot's results or the Merrill settlement was disappointing for the optimists. Then again, so was most of today's action.
Today marked the second consecutive day weakness in the dollar failed to aid tech stocks, which runs counter to the bullish spin that a weak currency is good for the sector, among others with big international exposure. I mused about this
last night and forgot to mention the obvious: The dollar was rallying steadily throughout the mid- to late-1990s, which was a pretty good time for tech stocks (among others), if memory serves.
Thus, those searching for the "silver lining" in a weakening greenback should be careful what they wish for.
Today, the dollar improved modestly vs. the euro but fell to a five-month low vs. the yen, trading as low as 123.69 yen intraday before settling at 124.13, down 1% from yesterday's close.
"After the dollar broke below the key technical level of 125.30 this morning, we immediately considered 123 as the next key point," commented Ashraf Laidi, chief currency analyst at MG Financial Group who explained 123 yen is a 61.8% retracement of the dollar's rise from its September low of 115.75 to this year's high of 135.15.
Today's slide came despite what Laidi called a "chorus of statements," from Japanese officials seeking to tame the yen's rise, including Prime Minister Koizumi, Finance Minister Shiokawa, Trade Minister Hiranuma, and Economic Minister Takenaka. A stronger yen undermines Japanese exporters, one of the lone areas of growth in that nation's beleaguered economy.
The jawboning is having limited effect in curtailing the yen's rise "in their continued quest to prevent their nation's credit rating from being downgraded further," Japanese officials are also defending the nation's economy, which is aiding interest in its currency, Laidi noted. For example, Koizumi said current yen levels reflect the assessment that Japan's economy is doing better than expected.
Such comments compel foreigners to invest in Japan; in early May, foreign buying of Japanese investments, mainly government bonds, reached its fastest pace since mid-October, Laidi reported. Meanwhile, Japanese investors continue to repatriate assets; they were net sellers of foreign bonds in the first 10 days of May to the tune of about 441 million yen, he said, the highest level in two months.
Long bullish on the greenback, Laidi continues to believe "the rest of the world cannot afford to see continued declines in the U.S. currency, which buys 20% of the world's exports." As to rumblings about overt Japanese intervention to weaken the yen and aid the dollar, he believes that won't occur unless the greenback falls below 123 yen, which isn't so far off.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.