'This is beginning to look a little too frothy for our liking,' says Bank of America Merrill Lynch strategist
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The S&P 500 and the Dow Jones Industrial Average logged fresh records on the back of robust earnings but both indexes finished off intraday highs in volatile trading as the buck rebounded following President Donald Trump's dollar-supportive comments.
A stronger dollar, while a symbol of the U.S. economic prowess, can also hurt the competitiveness of companies who derive a significant portion of their revenue overseas.
How did the benchmarks fare?
The Dow rose 140.67 points, or 0.5%, to end at 26,392.79, with shares of 3M Co. (MMM) and Boeing Co. (BA) leading the gains. The S&P 500 index edged up 1.71 points to 2,839.25 while the Nasdaq Composite Index declined 3.89 points to 7,411.16.
On Wednesday, the Dow rose 0.2% to a record close (http://www.marketwatch.com/story/dow-futures-rise-as-market-rally-shows-no-sign-of-abatement-2018-01-24), while the S&P 500 finished 0.1% lower and the Nasdaq Composite lost 0.6%.
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The three equity gauges are up between 6% and 8% so far in 2018, adding to last year's sizable gains as investors cheer the expanding U.S. economy and growth in corporate profits.
What drove the markets?
Trump said Treasury Secretary Steven Mnuchin's comments a day earlier in which he said a "weaker dollar is good for trade" were taken out of context. Trump, in an interview with CNBC at the World Economic Forum's annual meeting in Davos, Switzerland, said he expects the greenback to get "stronger and stronger" over time. Trump's apparent endorsement of a firmer dollar helped the currency reverse course with the ICE U.S. Dollar Index rebounding into positive territory after hitting three-year lows (http://www.marketwatch.com/story/dollar-falls-further-as-mnuchin-defends-weak-buck-comments-2018-01-25).
(http://www.marketwatch.com/story/dollar-falls-further-as-mnuchin-defends-weak-buck-comments-2018-01-25)Separately, the European Central Bank left interest rates unchanged (http://www.marketwatch.com/story/ecb-leaves-monetary-policy-unchanged-2018-01-25) and repeated that it expects to keep interest rates at present levels for an "extended period" and "well past" the end of its asset purchase program, which is due to expire in September
Read:Trump's weak-dollar policy is Mario Draghi's problem (http://www.marketwatch.com/story/its-trumps-dollar-policy-but-draghis-problem-2018-01-25)
What were strategists saying?
Paul Nolte, portfolio manager at Kingsview Asset Management, blamed the dollar for the market's move south in the afternoon. He also sees technical resistance coming into play given that stocks have gained significantly over the past months.
Kent Engelke, chief economic strategist at Capitol Securities Management Inc., stressed that the market is extremely overbought and is on pace to match the longest streak of ending in overbought territory, as measured by the Relative Strength Index, since 1996.
"The market has been racing nonstop towards the finish line and just got a cramp in its leg," said Michael Antonelli, equity sales trader at Robert W. Baird & Co, referring to earlier volatility.
"While we remain bullish for the year as a whole, this is beginning to look a little too frothy for our liking," said James Barty, a Bank of America Merrill Lynch strategist, in a note on Thursday.
U.S. stock indexes and global benchmarks have been "fast out of the blocks" in the new year, Barty said. "Could equity markets melt up? Possibly," he added. "But additional shorter-term hedges make a lot of sense when things are as frothy as this."
Crista Huff, chief analyst at Cabot Undervalued Stocks Advisor, said that she is advising her clients to be prepared for a correction, defined as a drop of at least 10% from a recent peak, in March.
"It will take three to five months to recover," but she said she expected to market to resume its path higher afterward.
Which stocks were key movers?
3M shares were rising after the manufacturer reported fourth-quarter results that were better than expected on an adjusted basis and increased its quarterly dividend by 16% to $1.36 a share. Shares were up 1.9%.
Celgene Corp.'s stock (CELG) added 1.2% after the biopharmaceutical company reported a fourth-quarter profit (http://www.marketwatch.com/story/celgenes-stock-gains-after-profit-beats-expectations-2018-01-25) that rose above expectations. The company swung to a net loss of $81 million, or 10 cents a share, in the quarter to Dec. 31, from a profit of $429 million, or 53 cents a share, in the same period a year ago.
Shares of American Airlines Group Inc. (AAL) retreated 3.2% after the company reported fourth-quarter earnings (http://www.marketwatch.com/story/american-airlines-reports-q4-earnings-ahead-of-wall-street-forecasts-2018-01-25) that were above Wall Street expectations.
Facebook Inc.'s stock (FB) rose 0.5% amid reports that U.K. Prime Minister Theresa May plans to blast (http://www.independent.co.uk/news/uk/politics/theresa-may-davos-speech-facebook-twitter-terrorist-propaganda-donald-trump-a8176281.html) social media companies again for providing platforms to terrorists, child abusers and slave traders. May, who is expected to make these remarks at the World Economic Forum in Davos, has previously criticized (https://news.sky.com/story/tension-between-theresa-may-and-facebook-over-extremism-online-10904140) such companies along these lines.
Ford Motor Co.'s stock (F) fell 4% after the car maker late Wednesday reported disappointing fourth-quarter results and reiterated a bleak outlook (http://www.marketwatch.com/story/fords-bleak-outlook-worsened-by-outside-factors-2018-01-24).
(http://www.marketwatch.com/story/fords-bleak-outlook-worsened-by-outside-factors-2018-01-24)Amazon.com Inc. shares (AMZN) gained 1.5% after an analyst at DA Davidson raised his price target on the stock to $1,800.
Home Depot Inc. (HD) said it would pay one-time $1,000 bonuses for U.S. hourly associates following corporate tax cuts. Shares were off by 0.4%.
Freeport-McMoRan Inc. shares (FCX) edged up 1.1% after the mining and metals company posted better-than-expected (http://www.marketwatch.com/story/freeport-mcmoran-shares-jump-3-premarket-after-earnings-beat-2018-01-25) fourth-quarter earnings.
Kroger Co. shares (KR) advanced 2.7% after reports that the grocer is in talks to join (http://www.marketwatch.com/story/kroger-shares-jump-on-reports-of-alibaba-partnership-2018-01-25)with Chinese online retailer Alibaba Group Holding Ltd. (BABA).
Apple Inc. shares (AAPL)fell 1.8% (http://www.marketwatch.com/story/apple-stock-falls-after-morgan-stanley-lowers-target-2018-01-25) after Morgan Stanley analysts weighed in on the question of iPhone X supply and demand.
Tesla Inc.(TSLA) fell 2.4% following reports that there may be further delays (http://www.marketwatch.com/story/tesla-stock-falls-on-report-of-gigafactory-issues-with-model-3-batteries-2018-01-25) with Model 3 production due to difficulties at the company's new battery factory.
What did economic data show?
Initial U.S. jobless claims rose by 17,000 to 233,000 (http://www.marketwatch.com/story/us-jobless-claims-rise-one-week-after-dropping-to-45-year-low-2018-01-25)in the seven days ended Jan. 20., below the 240,000 forecast of economists polled by MarketWatch.
Check out:MarketWatch's Economic Calendar (http://www.marketwatch.com/economy-politics/calendars/economic)
The leading economic index jumped 0.6% in December, marking the third straight strong (http://www.marketwatch.com/story/us-economy-primed-for-fast-start-to-2018-leading-indicators-show-2018-01-25)increase and suggesting the U.S. is likely to grow rapidly in early 2018.
Separately, new-home sales were at a 625,000 seasonally adjusted annual rate in December (http://www.marketwatch.com/story/new-home-sales-droop-in-december-but-cap-a-strong-2017-2018-01-25), the Commerce Department said Thursday.
What did other assets do?
European stocks (http://www.marketwatch.com/story/european-stocks-fall-to-1-week-low-as-all-eyes-on-ecb-2018-01-25) ended lower as the ECB's President Mario Draghi acknowledged the eurozone economy is improving, sending the euro higher while most Asian markets closed in the red. Gold futures settled higher (http://www.marketwatch.com/story/gold-at-highest-in-over-a-year-as-dollar-softness-persists-2018-01-25) and oil futures reversed earlier gains.
--Victor Reklaitis contributed to this article
(END) Dow Jones Newswires
January 25, 2018 16:33 ET (21:33 GMT)