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CLOSING WRAP-UP, Apr. 13
By Jody Osborne, Optionetics.com
4/13/2004 5:30:00 PM

http://www.optionetics.com/articles/article_full.asp?idNo=10224

Despite strong economic news, the stock markets fell hard on Tuesday. The Dow ($INDU) gave up 134.28 points, or 1.28 percent, to close at 10,381.28. The S&P 500 ($SPX) lost 1.38 percent, finishing the session at 1,129.44. The Nasdaq ($COMPQ) experienced the largest decline, falling 1.71 percent, or 35.40 points, to 2,030.08. Volume picked up substantially on the session, with the NYSE trading 1.79 billion shares and the Naz turning over 1.91 billion. Market breadth was negative by a 22-to-7 and 18-to-9 margin on the Big Board and Naz respectively.

Economic news was exceptionally strong today, which in part led to lower prices. Once traders saw the positive economic news, fears over rising interest rates set in. Fed fund futures went from an 86 percent chance of a rate hike in August to a 100 percent chance. The reason for this jump came from a very strong retail sales report and a better than expected business inventories report.

Retail sales rose 1.8 percent in March, well above expectations for growth of 0.7 percent. Nonetheless, the retail sector took a hit on Tuesday, with the S&P Retail Index ($RLX) falling 1.75 percent to 391.56. Weekly chain store sales also rose during the prior week, with consumers spending their tax refunds. Business inventories rose 0.7 percent, easily surpassing estimates for a reading of 0.5 percent. The large gain for the Richmond Fed manufacturing survey was also a positive for the economy.

Traders were also a bit hesitant about purchasing stocks ahead of Intel’s (INTC) earnings report after the bell. This might have been a smart practice considering the chip giant fell short of analyst estimates by a penny. This is only having a small negative impact on the stock in after hours trading, but could spell trouble for the sector come Wednesday.

The fact is that traders are expecting strong first quarter earnings results. This means companies will need to surpass these expectations for the stock market to continue higher. Companies like Yahoo (YHOO) have shown the willingness of traders to buy if the news is positive. Of course, rate hike fears are going to exist, but higher interest rates was inevitable and as long as they are not raised to fast, the economy and stock market should not suffer from the increase.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site