Biotech breakdown, retail retreat weaken market leadership

Today will nicely prove the point that Apple Inc. (AAPL), for all its power, is not a driver of the whole stock market (^GSPC). As discussed here Monday, the smartphone maker is mostly a bellwether of its own remarkable earning power and not an indicator of the technology business or consumer health.

Apple hogs more than its share of economic oxygen in the consumer technology area, just as Amazon Inc. (AMZN) commands an outsized portion of the retail business, making them more category killers than representative examples of their industries.

So Apple’s unsurprisingly strong quarter reported last night looks to boost Apple shares, but leaves the overall market back on its heels a bit and hunting for leadership after the indexes retreated from their record highs yesterday.

As it turns out, some of the potential leaders are showing signs of fatigue, which bear watching today.

The biotech stocks are barometers of investor risk seeking and willingness to believe in a happier future. They came in for one of their periodic sharp setbacks Monday, touched off by an adverse regulatory decision on an Amgen treatment.

The iShares Nasdaq Biotechnology ETF (IBB) sank more than 4% on the day, another reminder of how much emotion, hype and hot money tends to occupy the sector. The ETF failed right near the level where it peaked in late March. At that time, the decline was more than 7% in all.

Even with Apple marching to new highs, the Nasdaq will have a hard time sticking around record levels without the biotechs holding up, so the IBB is a good indicator of whether traders are playing offense or defense.

Less noticed has been the sloppy action in retail stocks. This, of course, was a favored group coming into the year: More jobs, lower gas prices and greater purchasing power were supposed to get Americans shopping again. Yet it hasn’t quite played out that way, and in the past three weeks the SPDR S&P Retail ETF (XRT) has substantially lagged the broad market.

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The biggest retail offender of the moment is The Container Store (TCS), which served up another weak quarter last night and might finally have squandered whatever investor goodwill remained. Shares of the home-organization goods seller will be duly punished and looks to fall to less than half the price where it first traded following its IPO in November 2013.

But it’s not just the one-off mall chain that’s suffering. Williams-Sonoma Inc. (WSM) is off nearly 10% since mid-March. Auto dealer chain CarMax Inc. (KMX) has had a rough month.

It’s too soon to read deeply into this pattern to suggest that the U.S. consumer is in a lasting funk. These were crowded trades and the first quarter had the bad weather and weak pricing power we all know about. But the retailers remain a key to the broad thesis that the market can withstand a stronger dollar and, perhaps, tighter Fed policy down the road.

Speaking of the Fed, today begins a two-day meeting that will end with a statement that should offer clues about the prospect for a rate hike by the fall. In contrast to last month’s meeting - when Wall Street was flinching for a hawkish message and got a gentle one – investors now have deferred most expectations for a Fed move until the end of the year or even 2016.

This leaves open the chance for a surprise if Janet Yellen decides to keep investors back on their heels by calling the economic soft patch temporary and leaving a September rate increase on the table.

That’s mostly tomorrow’s business. Today is probably more about squaring up bets before the possible Fed turbulence Wednesday afternoon.

In the meantime, track those one-time leaders in biotech and retail for clues about whether Apple has left any oxygen for the rest of the market to breathe right now.

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