The Pull Back Continues

The U.S stock market continued to drop yesterday shredding additional gains. Even though there weren’t any major influencing economic events, investors preferred to cash-in on recent gains, especially around high levels. The S&P500 dropped by 1.27%, while the Dow Jones Industrial Average closed with a loss of 1.83%.

As mentioned in previous reports, investors have been expecting a correction, especially as the major stock indices have rallied since the beginning of June. Financials led the way lower yesterday, as names like CIT Group, shredded 18.92%. The financial sector was the worst performer of the day, closing down by 3.71%.

From a technical point of view the S&P500 retraced most of last week’s gains and finished yesterday’s session below the 1000 mark. Even though a technical correction towards the 38.2% Fibonacci level is still classed as a reasonable pullback, one must take into consideration the upcoming economic events. The Fed is scheduled to release its interest rate decision today, currently expected to leave rates at 0%-0.25%. Even though the result is highly expected to come out as the current consensus, investors will react according to the Fed’s outlook and future policy.

Certain analysts are now speculating that the low rates in the market could cause additional problems, leading to future inflation. Furthermore, some are also mentioning that there still are additional problems, lurking under the surface - ones that could lead to a double dip recession.

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