Stocks Fade On Fed Fears

Stocks were back in the red on Monday, as the summer doldrums left investors with nothing to do but fret over the fate of the quantitative easing program. The minutes from the July FOMC meeting will be released on Wednesday and Thursday brings the big Jackson Hole Economic Policy Symposium sponsored by the Kansas City Federal Reserve. Ben Bernanke will not be attending this year due to a “schedule conflict”, which means he will likely be refreshing his saxophone expertise to make his retirement more enjoyable.

Monday’s declines were led by the energy sector, after Mother Nature refused to conspire with the gas and oil industry by failing to deliver a hurricane in the Gulf of Mexico. An incipient weather system had been given a high probability of developing into a tropical storm, although it failed to strengthen. Prices for West Texas Intermediate Crude fell for the first time in a week.

The Dow Jones Industrial Average (DIA) lost 70 points to finish Monday’s trading session at 15,010 for a 0.47 percent drop. The S&P 500 (SPY) dropped 0.59 percent to close at 1,646.

The Nasdaq 100 (QQQ) declined 0.14 percent to finish at 3,069. The Russell 2000 (IWM) sank 1.08 percent to end the day at 1,013.

In other major markets, oil (USO) declined 0.60 percent to close at $38.17.

On London’s ICE Futures Europe Exchange, October futures for Brent crude oil declined by 74 cents (0.67 percent) to $109.66/bbl. (BNO).

December gold futures declined by $6.20 (0.45 percent) to $1,364.80 per ounce (GLD).

Transports got stuck under a bridge during Monday’s session, with the Dow Jones Transportation Average (IYT) dropping 0.89 percent.

Japanese stocks rebounded on Monday as the energy sector made big gains. On the other hand, Tokyo Electric Power (TEPCO) saw its share price sink 3.6 percent after two more workers were exposed to radioactive dust at the Fukushima plant on Monday. The Nikkei 225 Stock Average climbed 0.79 percent to 13,758 (EWJ).

In China, stocks broke a three-day losing streak after the government disclosed plans to expand fiber optics and wireless networks. The telecommunications and rare earth minerals sectors led the advance. The Shanghai Composite Index surged 0.83 percent to close at 2,085 (NYSEARCA:FXI). Nevertheless, Hong Kong’s Hang Seng Index declined 0.24 percent to end the day at 22,463 (EWH).

European stocks started the week in the red on Monday after a 1.5-percent drop in the price of copper sent mining company shares into the red (VGK). Rio Tinto Group and Anglo American Copper were particularly hard-hit. Trading volume was thin, as most Europeans are “on holiday” during August.

Spanish and Italian banks added to the downward momentum after Spain’s largest bank, Banco Santander, took a hit as Spanish sovereign bond prices fell (EWP). UniCredit and Italy’s Banco Popolare fell as Italian sovereign bond prices dropped (EWI).

The Euro STOXX 50 Index finished Monday’s session with a 1.08 percent drop to 2,823 – while remaining above its 50-day moving average of 2,705. Its Relative Strength Index is 60.49 (FEZ).

Technical indicators revealed that the S&P 500 dropped further below its 50-day moving average of 1,657 after finishing Monday’s session with a 0.59 percent decline to 1,646. At this point, bears are watching the formation of a head-and-shoulders pattern on the S&P chart. (There already is a pinhead-and-shoulders pattern running from the period beginning on July 10 through the present.) Its Relative Strength Index fell from 38.74 to 35.29. The MACD is below the signal line and both are on a downward trajectory, suggesting a continued decline.

For Monday, all sectors were in negative territory, except for the healthcare sector, which advanced 0.18 percent. The energy sector took the hardest hit, sinking 1.59 percent.

Consumer Discretionary (XLY): -0.43%

Technology: (XLK): -0.30%

Industrials (XLI): -0.53%

Materials: (XLB): -0.79%

Energy (XLE): -1.59%

Financials: (XLF): -1.32%

Utilities (XLU): -0.85%

Health Care: (XLV): +0.18%

Consumer Staples (XLP): -0.45%

Bottom line: A slow, summer day left investors dwelling on what Wednesday’s release of the minutes from the July FOMC meeting might tell us about the fate of quantitative easing.

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