Floor Talk - At the lows seen a short time ago, yesterday's gains for the Nasdaq Composite and S&P 500 had been wiped out and then some while the Dow came within a whisker of giving everything back.
The reversal of fortune has been triggered by Monday's good fortune, which seemed a little too good in light of the weaker than expected economic reports and the run that had already been made in February.
From their lows in January to yesterday's high, the Dow, Nasdaq, S&P 500, S&P 400, and Russell 2000 had risen 5.0%, 8.0%, 4.8%, 6.0%, and 5.8%, respectively.
We suspect several catalysts have melded together to trigger today's broad-based profit-taking efforts:
The idea that the stock market has gotten ahead of itself, running to new highs while EPS growth estimates for the first (-2.5%) and second (-1.8%) quarters have turned negative, according to S&P Capital IQ, and incoming economic data has been repeatedly disappointing
A recognition that bullish sentiment readings are elevated above long-term averages; and
The awareness that volatility has collapsed over the last month (suggesting complacency has risen)
It doesn't appear to be any more than profit taking either.
To that end, many of yesterday's best sector performers -- consumer discretionary, health care, information technology, basic materials, and financials -- are today's worst sector performers. In general, there hasn't been much interest today in U.S. assets.
The U.S. Dollar Index is down 0.4%; Treasuries haven't caught much of a bid despite the equity weakness (10-yr unch at 2.09%), and small-cap, mid-cap, and large-cap equity averages are all in negative territory.
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