The month of April certainly started off with a promising outlook. March 31 saw a huge rally which for the first time in many weeks was actually followed through with another big rally on April 1. April 2 saw another rally but then problems started to emerge as investors saw two reports. The first was the Weekly Initial Unemployment Insurance Claims which showed the employment trend continuing almost unchanged from the previous weeks and on Friday the employment numbers themselves seemed to spook investors.
Fed and Interest Rates
The fear among many investors, big and small, is interest rates. When they rise they believe stocks will fall as money moves from stocks into interest bearings investments. A lot of investors have felt that interest rates would rise a long way into the future. That changed when Fed Chair Janet Yellen let slip her interest rate rise projection which definitely caught investors by surprise and sent stocks tumbling. Stocks recovered from that tumble but only for a brief period and now we are back to selling again. I believe a lot of the selling is the result of fear of interest rates rising sooner rather than later and of the Fed tapering continuing and drawing to a close this year. The employment numbers may not be robust but they have been unrelenting in their forecast that the economy in general is slowly healing. The non-participation rate among workers was at the highest level since the Great Depression just a year ago, but each month the numbers have been declining and Friday’s numbers showed that possibly as many as 110,000 people from the non-participation group were back looking and securing jobs. The Fed had indicated clearly that the non-participation rate is what concerned them greatly. With these kinds of numbers a lot of investors seem to feel that the non-participation rate is the last roadblock to higher interest rates and it is breaking down. With stocks at all time highs, it seems prudent to start selling.
Primarily Spec Stocks To Start But Now Spreading
Selling always breeds more selling. Stocks are an emotional roller coaster ride and when a lot of investors see selling happening the become fearful and join in. On Friday much of the selling was confined to more speculative stocks like Facebook, Twitter, Amazon and the like. The Russell 2000 has been falling every day reflecting the fear investors have. On Monday though that selling was spreading into bigger cap names like Lowes, Aflac, Disney, Home Depot, McDonalds, Visa and many others. In other words, investors big and small are not waiting to see what will happen next but instead are removing themselves from risk of further declines.
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