Am I Right, Am I Wrong? Stocks Rise, Fall and Rise Again

Stocks rose, fell and rose today as gains in Best Buy (BBY), Apple (AAPL) and Pfizer (PFE) outweighed losses in National Oilwell Varco (NOV) and Salesforce.com (CRM).

Junho Kim/The Wall Street Journal

The S&P 500 rose 0.3% to 1,869.43 today, while the Dow Jones Industrial Average gained 0.5% to 16.448.74. The Nasdaq Composite fell ever-so slightly (0.03% if you must know) to 4,074.40 and the small-cap Russell 2000 dropped 0.5% to 1,117.06. Clearly, bigger was better.

Best Buy rose 4.8% to $25.55, while Apple gained 3.9% to $594.09, continuing a rally that began last week after it beat earnings and announced a stock split. Pfizer advanced 4.2% to $32.04 after it said it’s still interested in purchasing AstraZeneca (AZN).

National Oilwell Varco fell 7.4% to $77.31 after investors panicked following the oil-services firm’s disappointing financial results. Salesforce.com dropped 7% to $49.13.

BofA Merrill Lynch’s Stephen Suttmeier and Jue Xiong contemplate the continued divergence between the S&P 500 and the Nasdaq:

The S&P 500 is much stronger than the NASDAQ. The NASDAQ lost leadership status vs. the S&P 500 and this reflects a regime change for the rally that began in late 2012. This regime change is emerging leadership from large and mega cap stocks at the expense of small caps and the high-flyers within the NASDAQ. At this point, the S&P 500 uptrend remains intact while the NASDAQ shows signs of a head and shoulders top. We are not ruling out a probe to new highs on the S&P 500 into the low 1900s, but the risk is for a lower high on the NASDAQ that puts a negative divergence in place.

Axioma’s Melissa Brown notes that even after the euphoria of last year ended, market risk remains near historical lows:

…even with the "speed bump" in the first quarter, risk remained much closer to all-time lows than to all-time highs. Risk spreads suggest that there is not some unidentified risk bubbling under the surface, and while correlations will go up and down, they seem to have broken the pattern of wild fluctuations driven by global events, at least for now. We remain cautiously optimistic about the picture for risk in the upcoming months.

JPMorgan’s Jan Loeys and team believe that the low volatility across most asset classes has prompted the search for yield:

The search for yield (SFY) is the term we use for the seemingly mindless buying of higher-yielding debt, as if it were a free lunch…We view the search for yield as a rational response to ultra low fundamental volatility and no return on cash. It will likely last until the Fed hikes and serious volatility returns, probably at the same time late next year. Until then, we focus on HY credit and select FX. Broad EM carry awaits better fundamentals.

We’ll see what the Fed has to say about that on Wednesday.