A FLAT April continued the US stock market tale for the year: full of sound and fury, signifying nothing.
Stock prices flew hither and yon on most sessions last week as they have on many sessions this year. And yet for the week, the month and the year, the major indexes finished more or less flat. The skittishness about the Federal Reserve's plans and the global economy is likely to keep the action lively and directionless for another week.
The Nasdaq Composite had closed the prior week at an all-time high, surpassing the dotcom peak that had long seemed unassailable. This time around, the technology stocks that make up the bulk of the index - such as Apple, Google and Facebook - are highly profitable. But, as traders discovered last week, another significant sector in the index may have formed a speculative bubble comparable to that of the early-stage Internet companies that proliferated in the year 2000.
Like the dotcoms, many small biotechnology companies have yet to turn a profit or even release a product. Like the dotcoms, biotech shares often gain several percent a day for no reason other than the fact that day traders like to gamble on them. Like the dotcoms, the companies occasionally tap into highly profitable markets - in this case discovering cures for diseases rather than novel ways to conduct shopping. But, as with the dotcoms, the vast majority of small biotechs never make it into the green.
Last week, the ProShares Ultra Biotechnology Fund, an exchange-traded fund designed to double the return of an index of biotech stocks, fell 11 per cent and at one stage had given back half of its 40 per cent gains on the year. One biotech company, Celladon, saw shares fall almost 80 per cent on Monday after it warned that a promising drug candidate performed poorly in a clinical trial.
The immediate impetus for the sell-off was shifting odds on the Federal Reserve's interest-rate schedule. The Fed's Wednesday statement was ambiguous on the timing of a hike, and markets initially interpreted it as a tacit postponement.
"They talked about wanting to do it sometime this year . . . maybe, compared to late summer, early fall guideline, which people were whispering about," said Oliver Pursche, president of Gary Goldberg Financial Services.
"It's pretty clear from the statement that nothing will happen before September."
On balance, the Fed's comments about the "transitory" nature of weakness in US economic data sounded, at least to some, more like a guarantee of a hike by the end of the year.
Biotech stocks and utility stocks were two of the best performing sectors of the last 18 months, largely because the Fed's ultra-low interest-rate policy has driven investors out of the bond market into these niches. Retirees who sought to live off interest payments or "fixed income" migrated to the utility sector. Free range hedge funds which had used borrowed money to make leveraged bets in junk bonds or emerging-market stocks found better odds in the biotech niche.
More broadly, an uneven earnings season has made stocks jumpy. While the vast majority of Standard & Poor's 500 companies surpassed the modest expectations for earnings, most fell short of revenue expectations, said Joe Kinahan, chief derivatives strategist at TD Ameritrade. The culprits: oil and the dollar.
Oil companies from ExxonMobil to Britain's BP, to France's Total, saw revenue plunge, reflecting the roughly 50 per cent drop in oil futures during the quarter.
Meanwhile, multinationals from social network Facebook to electric-power outfitter Eaton said that the stronger dollar diluted the value of earnings
"Markets bounced around on earnings," said Eric Marshall, portfolio manager with mutual-fund firm Hodges Capital in Dallas. "When you look through the currency noise, and some volatility seen on West coast port disruption, overall earnings season has come in pretty solid."
Another stock-market trend that hangs in the balance: the resurgence in the price of small-capitalisation stocks. These companies are considered the most sensitive to the US economy and had led the bull market until 2014. As growth slowed, so did the small-cap rally. When the dollar took flight against other currencies this year, however, it didn't hurt small companies as much as it did the big ones.
"You've seen the multinationals face greater headwinds in the first quarter than the smaller domestic centric companies," said Mr Marshall of Hodges Capital.
For the dollar rally to continue in foreign-exchange markets and the small caps to recoup last week's losses, the jobs report on Friday will have to exceed expectations of a status quo report. If more than the economists' average target of 230,000 jobs were added in April, the Fed will almost certainly raise rates by December. In that event, traders could punish the utility and biotech sectors further. But small caps and other economically sensitive niches such as big banks should carry the market higher.
"The Friday report is crucial because it's part of what the Fed is looking for before they embark on normalisation of rates," said Quincy Krosby, market strategist at Prudential Financial.
"They want to make sure the economy is on a solid footing."