After heavy losses on Wednesday, US stocks followed the example of Asia and Europe and continued the decline Thursday morning. Crude oil rallied as Saudi Arabia began airstrikes in Yemen.
By Vikram Rangala
Thursday, March 26, 2015
With four days left in the first quarter, sellers are still in control as funds shed losers and take profits on winners in the end-of-quarter rebalance. Other investors looked to precious metals and the yen as temporary safe havens.
The major driver of the selloff was the tech sector, particularly biotech stocks. That sector has done well overall (remember all the talk about another Tech Bubble?), suggesting that some of the selling was profit-taking. The S&P (-1.46%) and Dow(-1.62%) had their biggest losses in two weeks. The tech-heavy Nasdaq Composite finished 2.4% lower, with the iShares Nasdaq Biotechnology ETF losing 4.1%.
The markets received good news as weekly jobless claims dropped an unexpected 9,000 to 282,000, with layoffs close to a 15-year low. Economists generally consider this a sign of confidence among employers.
The additional data showed particularly good developments for those making less than $50,000 a year in services that include the retail and restaurant industries. Women and lower-income workers reported higher ratings of their personal finances. More confidence about finances may mean consumers are ready to start spending and help drive the economy after the winter slump. Consumer confidence also climbed last week, tying the second-highest level since July 2007.
As investors moved some money out of stocks, gold broke through the key psychological level of $1,200 an ounce in the Asian sessions, moving higher in Europe. Oil prices jumped as much as 6%, with reports of Saudi Arabian airstrikes in Yemen raising fresh concerns of supply disruptions. NYMEX May light, sweet crude futures climbed $1.93, or 3.9%, to $51.12 a barrel, in the Globex electronic session, according to FactSet. May Brent crude (a measure of global prices that includes more heavy, sour crude) rose $2.30, or 4%, to $58.75 a barrel.
Saudi Arabia, with support from other Gulf nations launched airstrikes against rebel forces in Yemen’s capital and across the country. The strikes began Thursday morning, hours after Yemen’s president, Abed Rabbo Mansour Hadi, fled the southern port city of Aden by boat when Iranian-backed Houthi militants closed in.
Yemen is not a major oil exporter, though it does depend on its meager exports, which are 90% of its total. Yemen's real strategic value (as it has been for thousands of years) is its location next to the Bab el-Mandeb Strait, a major seafaring transit point since before the Roman empire. Oil tankers that transit the Suez Canal must pass through Bab el-Mandeb. Which gives the current Saudi-Iran proxy war in Yemen some overtones of the old British-Ottoman fight for control of the Suez in the late 19th century.
While the role of biotechs in this week's slide is obvious, it's part of the larger end-of-quarter selling that funds must go through. Typically, they sell at the end of the quarter and then move money back into the stock market at the start of the new quarter.
That is no guarantee that a week from now we will see buying, but that is the historical tendency. One thing is likely, however: the bottom and reversal will be volatile and hard to predict. A limited-risk approach like binary options is valuable at such times.
This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.