Ichan Spoils Stock Market Rally

Stocks retreated on Monday after billionaire Carl Ichan warned that the stock market could experience a “big drop”.

While speaking before the Reuters Global Investment Outlook Summit on Monday, billionaire investor Carl Ichan warned that he is taking a “very cautious” approach toward equities and that the stock market could experience a “big drop” because quarterly earnings reports were a “mirage” caused by low interest rates. The remarks followed a flow of warnings from stock market commentators after the Dow Jones Industrial Average broke above 16,000 for the first time and the S&P 500 made its first appearance above the 1,800 level. Ichan sparked a mood of risk aversion as investors headed for the sidelines and the major stock indices retreated from their record intraday highs, although the Dow managed to book another record-high close.

Despite a late-day selloff, the Dow Jones Industrial Average (DIA) managed to pick up 14 points to finish Monday’s trading session at a new record-high close of 15,976.02 for a 0.09 percent advance. The Dow also hit a new record intraday high, breaking the 16,000 barrier for the first time to reach 16,030.28. The S&P 500 (SPY) declined 0.37 percent to 1,791 after hitting a new record intraday high of 1,802.53 and breaking the 1,800 barrier for the first time.

The Nasdaq 100 (QQQ) sank 0.98 percent to finish at 3,388 after climbing as high as 3,429 – its highest intraday level since October of 2000. The Russell 2000 (IWM) dropped 0.80 percent to 1,107.

In other major markets, oil (USO) fell 0.77 percent to close at $33.62.

On London’s ICE Futures Europe Exchange, January futures for Brent crude oil declined 34 cents (0.31 percent) to $108.16/bbl. (BNO).

December gold futures declined $13.70 (1.06 percent) to $1,273.70 per ounce (GLD).

Transports got run over by Toronto Mayor Rob Ford on Monday, with the Dow Jones Transportation Average (IYT) falling 0.29 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks held close to the breakeven level on Monday, as the yen strengthened to 100.02 per dollar just before the closing bell in Tokyo. The yen rose after weakening as far as 100.39 per dollar earlier in the trading session (FXY). A weaker yen causes Japanese exports to be more competitively priced in foreign markets. The Nikkei 225 Stock Average dipped 0.01 percent to 15,164 (EWJ).

In China, stocks continued to skyrocket after the government officially confirmed the information which appeared in a document, which was leaked by way of online social media last week, purporting to reveal specifics about reform plans, made during the Communist Party meeting over the weekend. Abolition of the nation’s “one child” policy was included in the list of new reforms.

The Shanghai Composite Index vaulted 2.87 percent to 2,197 (FXI). Hong Kong’s Hang Seng Index soared 2.73 percent to end the day at 23,660 (EWH).

Stocks climbed higher in Europe as the automotive sector led the advance in anticipation of an upbeat report from the European Automobile Manufacturers Association (ACEA) on Tuesday. The Euro STOXX 50 Index finished Monday’s session with a 0.88 percent advance to 3,081 – rising further above its 50-day moving average of 2,976. Its Relative Strength Index is 63.05 (FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,726 after declining 0.37 percent to finish Monday’s session at 1,791. Its Relative Strength Index fell from 68.14 to 64.68. The MACD is on a level trajectory, immediately above the signal line, which would suggest that the S&P will remain just below 1,800 in the immediate future.

On Monday, all sectors finished in negative territory, except for the industrial sector, which advanced 0.15 percent after the Industrials Select Sector SPDR ETF (XLI) hit an all-time record, intraday high of $50.40.

Consumer Discretionary (XLY): -0.79%

Technology: (XLK): -0.38%

Industrials (XLI): +0.15%

Materials: (XLB): -0.61%

Energy (XLE): -0.76%

Financials: (XLF): -0.05%

Utilities (XLU): -0.11%

Health Care: (XLV): -0.44%

Consumer Staples (XLP): -0.31%

Bottom line: Carl Ichan spoiled a day which could have brought a public relations bonanza to brokerage firms, as both the Dow and the S&P 500 broke into new levels for the first time – with the Dow popping above 16,000 and the S&P rising past 1,800. Ichan’s remark that upbeat earnings reports were a “mirage” caused by low interest rates fueled the selloff.

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