Taking Profits on the Street

One day after the Dow Jones Industrial Average matched its record of 24 sessions out of 27 in which it closed higher at the closing bell, something it has not done since 1927, the market opened down on Tuesday morning as investors decided, based on several factors, that it was time to secure their earnings by selling off a lot of high-performance stocks and taking the profits.

"What we're seeing here is a market that has a certain amount of exuberance attached to it, the longest winning streak in 80 years. I'm not sure this is the long awaited pullback. [However], there's a lot of caution ahead of the [Fed] meeting [while] we are definitely overbought," Avalon Partners chief market economist Peter Cardillo says.

In the opening hour of trading on Wall Street Tuesday, May 8^th, 27 of the 30 companies that make up the Dow were trading down, the downward trend leader being General Motors.

Overseas stocks were generally down at yesterday's close, and the Federal Reserve meeting on Wednesday to discuss interest rates is looming in investors' minds in spite of the enthusiasm about the market. Some investors are also beginning to anticipate a coming market correction, which they see as inevitable sooner or later. Investors are clinging to the hope that the Fed aims for an interest rate cut, but the expectation is that they are going to leave things alone for now. Investors are awaiting new information from the Fed as well as from earnings reports from such companies as Walt Disney and Cisco Systems.

Fixed-income investors began putting more money into bonds, driving their prices up, therefore driving down their yields. The 10-year Treasury bond was down to a yield of 4.62 in the opening hour of Tuesday morning from its close at 4.64 on Monday.

Oil prices began creeping back up because of fears of disruption in supply lines. Nigeria, the world's eighth largest provider of oil, had three of its major oil pipelines bombed by the main militant group there that continues to try to derail that nation's oil profits. A barrel of light, sweet crude rose 20 cents to $61.67 in pre-market trading on the New York Mercantile Exchange.

However, the continued rise of the US stock market is expected to continue on into next week after the Fed news is released. Mike Holland, fund manager at Holland Balanced Fund, says, "It would be reasonable to expect the market to tread water going into the Federal Reserve meeting. Having said that, there's a momentum here that can feed on itself."

Sources:

MarketWatch, "U.S. stocks seen advancing next week"

MarketWatch, "Stocks open lower on consolidation, focus on Fed"

Yahoo Finance