Updated from 4:02 p.m. EST
Stocks retreated from their year highs Tuesday and closed moderately lower, as technical pressure materialized in the absence of any major economic or corporate news.
"The market is definitely quiet after the party, with a little bit of a hangover," said Art Hogan, chief market analyst for Jefferies. "There is nothing on economic activity today, so the market will wait for Intel's midquarter report
Thursday, ISM services and Friday's employment report."
Dow Jones Industrial Average
fell 45.41 points, or 0.5%, to 9853.64, after six winning sessions. The
lost 3.51 points, or 0.3%, to 1066.62 and the
dipped 9.75 points, or 0.5%, to 1980.07. Both the Dow and S&P closed at 18-month highs Monday, while the Nasdaq reached a 22-month high.
Volume on the
New York Stock Exchange
was 1.38 billion shares, while 1.78 billion shares changed hands on the Nasdaq. Advancers vs. decliners were nearly even on both the NYSE and Nasdaq.
Nora McAuley-Gitin, a technical analyst at Morgan Stanley, worried the equity markets may be growing complacent at current levels. She wrote in a note to clients that despite "yesterday's strong showing, we believe that the temptation will become stronger for some investors to lock in performance before the end of the year."
Equity returns have been no less than dramatic this year. The Dow is already up about 18%, the S&P 500 has risen about 21%, and the Nasdaq has surged about 48%. With the markets apparently well priced for an economic recovery, where should investors turn for value? Technical analysts are growing increasingly wary of overall equity price levels, but fundamental players still emphasize that if investors dig deep enough, there are still some pockets of value.
While some expressed disappointment following the Thanksgiving shopping weekend, Hogan was impressed with sales of consumer electronics at
. Hogan believes this bodes well for big electronic retailers, who have lagged their peers thus far. He singled out
Richard Nash, chief market strategist with Victory Capital Management, sees value in consumer discretionary stocks, which on average have only returned about 6% on the year, according to the Amex. Specifically, he likes media stocks, which are likely to benefit from "increased advertising spending as the economy continues to expand, not to mention, 2004 is a presidential election and Olympic year."
The Amex Pharmaceutical index is only up about 7% on the year, despite a "wonderful article in
about the drug sector, specifically Pfizer, which was characterized as a fortress of a company," said Bernadette Murphy, chief market analyst at Kimelman & Baird. She believes the sector could catch up to the broader markets moving forward.
Murphy, Hogan and Nash all highlighted the energy sector. The S&P energy index is only up about 12% on the year, despite stubbornly high crude oil prices, which remain around $30 per barrel. "High energy prices are not reflected in the stock prices of commodity companies," said Hogan. "While many believe that the surge in oil is terrorism related, demand is growing as well, especially in China which accounts for about half of this increase."
The dollar was weaker against both the Japanese yen and the euro. The euro is currently fetching $1.2076, and has broken through its historical high, extending the dollar plunge that began two weeks ago following increased violence in the Middle East and escalating trade tensions.
The dollar continues to come under pressure from the growing U.S. current account and budget deficits, and concerns that foreign flows into Treasuries may dry up if yields remain so low.
The benchmark 10-year Treasury rose 5/32, its yield falling to 4.36%, after a steep drop Monday in the face of continued positive economic figures and encouraging holiday sales figures.
In earnings-related news,
said it expects to earn 21 cents to 24 cents a share, excluding items, in its fourth quarter, which would be in line with analysts' estimates of 23 cents a share. The company's shares rose 5 cents, or 0.3%, to $14.75.
preannounced that it expects operating earnings of $2.21 a share, excluding items, in the full year, which matches analysts' consensus estimate. For 2004, the company sees earnings of $2.24 to $2.28 a share, compared with analysts' forecasts of $2.45 a share. Pepsi shares dipped 57 cents, or 1.2%, to $48.14.
Pacific Growth Equities upgraded
to overweight from equal weight, citing a stronger fundamental outlook because of stronger demand. Recently, Oracle shares declined 11 cents, or 0.9%, to $12.40.
Overseas markets finished mostly lower. In London, the FTSE 100 fell 0.7% to 4379 and Germany's Xetra DAX declined 0.3% to 3809. In Asia, the Nikkei finished up 0.1% to 10,410 and Hong Kong's Hang Seng dipped 0.4% to 12,412.
Tomorrow's economic calendar is very light. Third-quarter productivity is expected to be revised up to 9.2% from 8.1%. Strong productivity growth has proven to be a double edged sword recently, helping to keep inflation low, but at the same time allowing companies to increase production without hiring new workers.
In addition, the Institute for Supply Management will release its services index, which is expected to fall slightly to 64.0 from 64.7.