Broad Sell-off for US Stocks as Investors Take Profits

While some pundits may claim the sky was falling today and today's trade signals the end of the rally, others will point out that this kind of profit-taking pull-back is quite normal after such a long string of gains.

Just a day after the Fed decided to keep rates unchanged, the Census Bureau and the Bureau of Economic Analysis of the Department of Commerce announced that the US trade deficit increased to $63.9 billion in March, up from a revised $57.9 billion in February.

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The news was a little surprising though hardly exceptional.

What certainly worried Wall Street more were the string of dismal figures coming in from retailers, which showed April same-store sales falling sharply from the same period a year ago. Topping the list was the nation's largest retailer, Wal-Mart (WMT), which reported a decline of 3.5%. Other notables reporting sluggish sales below last year's levels included JC Penny (JCP), Federated (FD), the Gap (GPS), and Nordstrom (JWN).

Accordingly, investors headed for the exits in many of the retailers, though Wal-Mart escaped with merely an 0.18 loss. Analysts defended the numbers, citing an early Easter and an unusually cold April, especially in the population-dense Northeast.

Dow 13,215.13 -147.74; NASDAQ 2,533.74 -42.60; S&P 500 1,491.47 -21.11; NYSE Composite 9,669.37 -158.56

While the retail numbers and increased trade deficit are causes for concern, most believe the US economy to be in relatively sound shape, though overall growth is expected to stall out at around 1.5 - 2 percent for all of 2007. Such a projection is hardly surprising, considering the slowdown in housing and high fuel prices, both having negative effects on consumers and, ultimately, business.

The serious concern is that the US economy could fall into recession, actually contracting instead of expanding. Current wisdom sees that as a remote possibility. Former Fed Chairman Alan Greenspan gave it a 1 in 3 chance of occurring in 2007. Other economics experts are of similar mind, though calls for the Fed to reduce interest rates are growing louder.

A few more negative signals may induce Ben Bernanke and the FOMC to drop the federal funds rate a quarter point at their next meeting in late June, though most believe the Chairman will move slowly and cautiously, keeping one eye on inflation and the other on the overall health of the economy.

Putting today's action into perspective, it has to be respected that the markets have been on quite a roll, with the Dow rising over 1000 points in less than 2 months. Corporate profits are still strong and the business environment is probably the most lax and calm as it's ever been. Regulators and government interference has been cut to minimal under the pro-business Republican reign. That influence may be waning, though a dramatic shift under Democrats is unlikely as they too receive most of their campaign money from big business.

Declining issues far outpaced advancers, by a 7-2 ratio. New highs remained positive, though less than has been the norm. There were 263 issues making new highs with 121 reaching new lows - the first time in two weeks that the number of new lows have surpassed 100.

Oil edged higher, adding 26 cents to the cost of a barrel, ending the day at $61.81. Gold continued to slide, losing a substantial $15.50 on the day, ending at $667.00. Silver also sold off, though not in such a dramatic fashion, losing .33 to close at 13.14.

Both of the metals have flirted with breakouts recently and failed. Oil, on the other hand, may be headed into a stabilizing period. With high gas prices seen as a major threat to the economy, the US Congress has made noises about investigations and windfall profits taxes, so it may be about time for the Big Oil cartel to back down on its over-aggressive appetite for US greenbacks.

There has been good news from overseas, though few have noticed. After reaching lows against the Yen, Euro and British Pound, the US Dollar has recently shown some resolve and gained strength against most of our major trading partners. Apparently, the world's currency standard still has some muscle.