Ten years ago on this date, Wall Street presented investors with a real bear of a problem.
Bear Stearns, the legendary investment house, waved the white flag and its assets got swallowed up by JPMorgan Chase (JPM) for pennies on the dollar. The reason: too much bad debt in the arena of low-quality mortgage-backed speculative instruments. The year 2008 later became one of the most historic market corrections in U.S. history as banks essentially stopped acting as counterparties for loans.
Some banks quickly changed their charters to receive federal assistance and survive.
With massive help from the Federal Reserve, most of Wall Street’s kingpins survived. (Remember WaMu, Wachovia, Merrill Lynch, Lehman? All of them went bankrupt or got folded into their competitors.) And on Wednesday, banks continue to be a leading force in the current bull run that has just entered Year 10 since the bottom in 2009.
Stocks showed lumpy action as cyclicals and blue chips bore the brunt of selling. But tech, internet and select growth stocks didn’t do so badly.
The S&P 500 dropped 0.6% for a second straight session and volume on the NYSE accelerated. This negative price-and-volume action translates into a second straight distribution day, raising the total for the large-cap benchmark to six over the past 25 sessions.
At least in terms of time, the S&P 500 won’t see a reduction in its distribution count until at least March 27.
The Dow Jones industrials — smacked by big drops in Boeing (BA) (down 8 points) and Goldman Sachs (GS) (off 4 points) — sank 1%. That decline sharpened the contrast with the outperformance of the Nasdaq composite, which fell less than 0.2%.
Nasdaq volume fell, indicating a lack of urgency among mutual funds, banks and other institutional investors to dump shares.
Want more evidence that top-flight growth stocks did pretty well, relatively speaking? The Innovator IBD 50 (FFTY) exchange traded fund lost just one penny. At 34.67, the fund is up 4.4% since Jan. 1 following its 37% jump in 2017.
And in Leaderboard, eight of the 11 current members gained for the day.
Six distribution days are certainly on the heavy side for the S&P 500, and all six sell-offs showed some teeth. The smallest drop among these declines was 0.5%. Compared with 2017, volatility is certainly up. The possibility of retaliation by U.S. trading partners seemed to be front-and-center in investors’ minds. On Wednesday, plastics, steel and automaker shares paced the decline with drops of 2% or more.
Railroads fell 1.7% as a group. Airlines also fell hard. The Dow transports got hammered 1.7%.
Yet the S&P 500 finished just above the 50-day moving average, and it’s only 4% off its all-time peak.
Meanwhile, will 7500 become a floor of support for the Nasdaq?
In January, it proved to be a hard ceiling to crack. In early February, sellers dominated the show and the Nasdaq needed just a few weeks to skid nearly 12%. But strength in the internet, computer, semiconductor and software sectors certainly give the Nasdaq a chance to be the leading index again in 2018.
Among the dozen or so industry groups that rose 1% or more on Wednesday were internet content, computer networking, educational software, database software, travel booking and movies.
Are small caps starting to perk up? IBD’s Small Cap Growth Funds Vs. Big Cap Growth Funds graph, seen in the latest IBD Weekly on Page A11, is rising in March after flattening out in February.