2 Reasons Stocks Stumbled Last Week

Over the past three days, the S&P 500 (SNPINDEX: ^GSPC  )  tumbled more than 3%, leaving analysts and commentators wondering whether this is the beginning of a bull market.

At first, there seemed to be few catalysts to spark the decline. On Tuesday, Alcoa (NYSE: AA  ) released earnings for the three months ended March 31. Although the aluminum giant's fortunes have waned in recent years, it's still often considered an informal bellwether for the broader economy, as it was formerly the first company on the Dow Jones Industrial Average to report results each quarter.

With this in mind, it would seem as if things are headed in the right direction, as the company announced better-than-expected net income, albeit on lower revenue. "Transformation is accelerating," said CEO Klaus Klienfeld. "We're powering growth in our value-add business and aggressively reshaping our commodity business."

Adding to the good news was an upbeat jobs report on Thursday. According to the Labor Department, initial claims for unemployment benefits dropped 32,000 to a seasonally adjusted level of 300,000 in the week ended April 5. It was the lowest reading in nearly seven years.

The good news left analysts scrambling to explain Thursday's tumble, in which the major stock indexes dropped 2%. The most common explanation seems to be that investors have finally decided that the market's multi-year rally has gone too far.

"Clearly investors are nervous about high-flying momentum stocks," an investment strategist told CNBC. "There is a rethink on whether better earnings and economic data will support a resumption of the momentum that was driving biotechnology and higher-flying technology stocks earlier in the year."

Further fueling a decline on Friday was JPMorgan Chase's (NYSE: JPM  ) disappointing earnings report. Net income at the nation's largest bank by assets fell by 18.5% on a year-over-year basis because of elevated legal expenses and disappointing revenue from trading and mortgage operations.

By contrast, Wells Fargo (NYSE: WFC  ) , the fourth largest lender by assets, announced yet another quarter of record earnings per share. It was the 17th consecutive quarter of EPS growth at the California-based bank, and news of the performance sent its stock up by 1.5% in afternoon trading yesterday.

When all was said and done, in turn, last week's drop appears to have been much more psychologically driven than anything else, as whatever bad news made its way into the market was coupled with evidence for optimism.

3 stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 12, 2014, at 4:25 PM, sirsa wrote:

    "Over the past three days, the S&P 500 (SNPINDEX: ^GSPC ) tumbled more than 3%, leaving analysts and commentators wondering whether this is the beginning of a bull market."

    Did you intend to say "bear" market?

  • Report this Comment On April 13, 2014, at 4:18 PM, Rifleman3006 wrote:

    He didn't know what "he intended". They like to tell us what we already know. Let's see him tell us what the market is going to do next week??

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2913092, ~/Articles/ArticleHandler.aspx, 10/24/2014 6:52:13 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement