For the mid-week ending June 11, 2014, the market retreats from all-time highs with the Dow dropping -0.60 percent today. This is the second day of decline for the S&P, amidst news from the World Bank which cut its global growth forecast for 2014, and the resignation of House Majority Leader Eric Cantor.
The Dow broke a 5-day winning streak by dropping 102 points and ending the day at 16,843.88; the S&P dropped to 1,943.89 after setting a record high on Monday of 1,955.55. This occurred on little news and very low volume. While Monday trended higher, Tuesday and Wednesday traded in a tight range; an indication that day-traders, not institutional traders, were the most active in the market.
Today the World Bank offered a stark warning which may shake the markets worldwide out of their complacency; the bank lowered its outlook on global growth. The World Bank cut its estimate on the expansion of the world economy for 2014 from 3.2 percent to 2.8 percent; it held its 2015 estimate unchanged at 3.4 percent. The bank warned that "now is the time to prepare for the next financial crisis, identifying markets as still skittish and vulnerable to slowing global growth."
In a major upset, House Majority Leader Eric Cantor lost the primary to economics professor David Brat (running as a Tea Party candidate). This is the first time in Congressional history that a House Majority Leader lost. Cantor, who was likely to succeed John Boehner as House Speaker, resigned his position as House Leader. The immediate impact on the markets (which dislikes change) is uncertain, but this will likely lead to greater polarization, inertia, and inaction within Congress.
CEO Lloyd Blankfein of Goldman Sachs says "Cantor's loss in Virginia symbolizes the failure of compromise." "Elected representatives are sent to Washington to compromise, not to never compromise."
We continue to expect the markets to be choppy the remainder of this week. The data from China will come out on Friday and could add to the volatility. Expect small dips to be followed by buying; if the markets overextend to the upside, expect profit taking. Pundits are expecting the S&P to hit 2,000 by the end of this month.
For more information about options, see the 'Suggested by the author' links below.