Stocks had a roller coaster of a day as the Dow Jones Industrial Average (INDEXDJX:.DJI) reversed from a near triple-digit decline to just barely finish up on the day.
In keeping with recent trends, we saw notable weakness in dividend-paying stocks, notably utilities (NYSEARCA;XLU), which finished the day down over 1%.
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These stocks had run up enormously into late April, so perhaps they were due for profit-taking, but it's likely that investors are bracing themselves for higher interest rates due to increasing speculation that the Fed may reduce the scale of its stimulus measures.
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This is putting pressure on many income producing investment instruments. Junk bonds would be another example, as they had a very positive start to the year, but they have been selling off as of late.
In economic news, the April durable goods number came in higher than expected at 3.3%, easily surpassing the 1.6% consensus. However, keep in mind that this number is both difficult to forecast and volatile, so it is not as reliable as its market impact might suggest.
Interestingly enough, while US stock futures reacted positively to the data, the happiness lasted for less than 15 minutes as stocks sold off sharply until around 10:00 a.m. ET, which is when a rally started at 1637 on the S&P 500 (^INX).
This was a near repeat of Thursday's action, which is when we saw early weakness, and then a rally starting from 1635, implying a resistance level in this range.
This volatility, along with the recent wild swings in Japan and the precious metals markets, appears to have traders on edge. This could be a double-edged sword; while emotions running high results in volatile trading, these conditions imply a wall of worry, which is technically bullish.
That said, if Japan can drop 7% in one day, we have to keep our eyes open for big moves on the home front, particularly if fears involving Fed tapering become widespread.
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Tuesday's Financial Outlook
As a reminder, the market will be closed on Monday in observance of Memorial Day.
There are only a few notable earnings reports scheduled for Tuesday . Scotiabank (BNS), Tiffany (TIF), and Seadrill (SDRL) will report in the morning, and United Natural Foods (UNFI) will deliver its report after the close.
In economics, the Case-Shiller home price report will be released at 9:00 a.m. ET , with Consumer Confidence following at 10:00 a.m. ET. However, we would advise those watching the markets closely to keep their eyes on Japan, as there is obviously heightened risk for volatility there, which could bleed into US markets.