What started out as a ho-hum day is turning into a rout. With roughly an hour left in the trading session, the Dow Jones Industrial Average (DJINDICES: ^DJI ) is off by 95 points, or 0.62%.
Tracing the impetus for any day's rise or fall is an inexact science at best. That being said, the one piece of news that could be weighing on equities this afternoon concerned a report that the trade gap expanded by 8.5% last month. According to the Commerce Department, the difference between imports and exports shot up to $40.3 billion in April from $37.1 billion the preceding month.
Offsetting this, however, was yet another report that home prices are on the mend. CoreLogic, a California-based analysis firm, noted this morning that home prices grew by 3.2% in April and by 12.1% on a year-over-year basis. This adds to a growing bevy of evidence about home prices and sales that points to a recovering, though still ailing, housing market.
An article published on the blog DealBook provided some insight into the forces behind this move. "Large investment firms have spent billions of dollars over the last year buying homes in some of the nation's most depressed markets," the author notes. "The influx has been so great, and the resulting price gains so big, that ordinary buyers are feeling squeezed out." Reading between the lines, the fear is that the recent ascent in prices is only sustainable so long as these investors remain active.
But housing prices and trade data aside, there was little else to explain the sudden downturn in the market this afternoon. Most financial news sites are attributing it to concern that the Federal Reserve will soon begin reducing its support for the economy. "We definitely think that equities are going to be more volatile with all the talk of Fed tapering," a Boston-based investment strategist noted to Bloomberg News. "You can see that volatility in the market jitteriness in the past days. Add to that, that in this slow growth environment, you tend to have more hiccups that you would otherwise have if you were in strong growth phase."
Whether or not this is the case, the reality is that daily movements like today's -- along with speculation about what the Fed will do at its next meeting -- should be largely ignored unless you're a trader on Wall Street. To make decisions based purely on speculation, rather than fundamentals, is to venture into a financial minefield.
In terms of individual stocks, Intel (NASDAQ: INTC ) is continuing its upward climb today. Shares of the chip maker gained on Friday amid rumors that Samsung had chosen Intel chips for its latest flagship tablet. The early reports were confirmed by Samsung yesterday, sending shares yet higher. And today, it seems Intel has the wind at its back. At the time of writing, its stock is up by 1%.
Yet the best-performing stock on the index is Merck (NYSE: MRK ) , which is soaring 2.4% after it gained nearly 4% yesterday. As my colleague Max Macaluso noted yesterday, the moves follow a report of "overwhelmingly positive interim results for its experimental melanoma drug lambrolizumab." And as fellow Fool Dan Caplinger discussed today, the continued momentum is likely a result of the realization that "yesterday's news on Merck isn't just about a single treatment, but rather an entire new class of treatments that stimulate the PD-1 protein within a patient's body in order to fight cancer."
Meanwhile, among the many stocks dropping today is Bank of America (NYSE: BAC ) . The nation's second-largest bank by assets is in the midst of a critical trial which will determine whether an $8.5 billion settlement reached in 2011 will be affirmed by a judge or whether the parties must go back to the drawing board. If it's not affirmed, it's safe to say that Bank of America will be exposed to billions of dollars' worth of additional liability, as well as heightened legal expenses.
Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analyst Anand Chokkavelu, CFA, and financials bureau chief Matt Koppenheffer lift the veil on the bank's operations, detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.
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