Small cap stocks lead the entire market lower as the market didn’t respond well to the FOMC’s statement. At the beginning of the day the ADP employment report disappointed showing weak job growth for the month of April. ISM manufacturing did surprise to the upside, but contracted month over month. Economic data continues to be weak across the globe and we continue to see diminishing returns from QE. After the release of the FOMC statement the market found a bid. However, during the final hour sellers took over and pushed the market to the lows of the day. This market remains in no man’s land and on the verge of heading back to the lows of April.
Dow Jones Transport index (TRAN) and the Russell 2000 (RUT) were beaten up badly. TRAN ended the day down 2.3% and closing below its 50 day moving average. The Russell 2000 dropped 2.5% and it too fell below its 50 day moving average. In April both indexes were able to find support despite closing below their respective 50 day average. Today’s move for both indexes certainly signals weakness and potential to head for April’s lows. Price action certainly is not telling a pretty story for both of these indexes.
All eyes will point towards Friday’s job report after today’s FOMC announcement. An excellent point made by Bill Gross of PIMCO was not the amount of savings we should be worried about, but the cost of savings. ZIRP has completely eroded yield for savers and thus no incentive to spend. The incentives for investment are misplaced and until rates can rise and improve the cost of savings we’ll continue to see lackluster growth. Remember, the Federal Reserve a Central Planning body is trying to manage decentralized data. It is time to challenge ZIRP and QE.
Given today’s move in TRAN and RUT certainly should give pause to bulls for the time being. Sell in May just might be turn out to be the thing to do? Stick with your rules and execute. Cut your losses and ride your winners