The Dow, Nasdaq, and S&P 500 all hit record highs yesterday, which included the first ever push above 40,000 for the Dow. It was a sight to behold, but then that level could not be held.<\/p>\n\n\n\n
The Dow closed at 39,869.38. The Nasdaq and S&P 500 also couldn’t hold their early gains and finished the session with modest losses. A pullback should not have been seen as a surprise.<\/p>\n\n\n\n
At their highs yesterday, the Dow, Nasdaq, S&P 500, and Russell 2000 were up 5.9%, 7.3%, 5.8%, and 6.8%, respectively in May, and up 6.5%, 10.4%, 7.5%, and 9.1% respectively, from their lows in mid-April. In other words, they were ripe for some profit-taking activity.<\/p>\n\n\n\n
Also of note, the S&P 500, at yesterday’s high, was trading at 20.8x forward twelve-month earnings or a 17% premium to the 10-year average, according to FactSet. It is not a stretch to think that there was a valuation headwind blowing.<\/p>\n\n\n\n
It wasn’t a strong headwind, but it was enough to slow the market’s breakout effort. That progress is still stalled for the most part this morning.<\/p>\n\n\n\n
Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 34 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 25 points and are trading fractionally above fair value.<\/p>\n\n\n\n
These indications point to a flattish open for the indices, which to be fair isn’t bad given how far they have come in a short amount of time. There is a bit of a battle, we suspect, between the fear of missing out on further gains and the fear of overpaying for stocks into what is shaping up to be a slower period of economic growth.<\/p>\n\n\n\n
Accordingly, there is an understandable wait-and-see perspective that is keeping things in check this morning at the index level on this monthly options expiration day.<\/p>\n\n\n\n