After The Close
The major large-cap equity indexes traded in mixed fashion up until the final hour, when they fell steeply into negative territory. Solid earnings performances from Corporate America and an in-line update from the Federal Reserve did little to spur a recovery from softness in the first part of the week, with the Dow Jones Industrial Average diving about 200 points into the red as the closing bell approached. The recent slate of quarterly reports has been impressive, though the prior rally in the stock market and concerns about difficult future earnings comparisons have kept valuations from advancing meaningfully. Still, despite the unremarkable performance by the Dow Jones Industrial Average, S&P 500, and NASDAQ, the small-cap Russell 2000 managed to log a respectable advance, though the small-cap index also pared gains in the final hour.
As for Corporate America, Apple (AAPL – Free Apple Stock Report) was one of the primary bright spots today. The tech giant reported better-than-expected top and bottom lines for the recent quarter and saw its stock price climb more than 5%. Facebook (FB) also enjoyed a substantial uptick in market value. Elsewhere in the sector, shares of fledgling social media company Snap, Inc. (SNAP) shed more than 20% after yet another underwhelming earnings call. But tech stocks benefitted from the iPhone maker’s ascent and managed to largely hold their own. The basic materials and energy sectors were the only groupings to post gains, while noncyclical consumer goods and telecommunications were the day’s biggest laggards. Overall, advancing and declining issues were roughly even in number.
In the monetary statement released at 2:00 PM (EDT) in New York, the Federal Reserve maintained the current rate structure, while offering some insight on its future plans. For one, the central bank sees inflation (excluding food and energy items) rising toward the 2% threshold, suggesting at least two more rate hikes are likely this year. The question remains whether or not the Fed will also opt to tighten the monetary reins in December, which will ultimately revolve around the rate of economic growth experienced in the coming quarters.
Meanwhile, the per-barrel price of U.S. crude oil jumped more than 1% today. The gain was buoyed by a weakening dollar after the Fed’s statement, while rising tensions in the Middle East continue to lend themselves to optimism in the commodity trade.
Looking ahead, it is likely earnings season remains a dominant storyline through the rest of the week. Further developments as it pertains to the country’s trade agreements with China and Europe and Friday’s employment update from the Department of Labor are liable to make some noise, as well. Stay tuned.
— Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
The stock market, which stumbled badly Monday afternoon, following a bullish first hour of trading, resumed its decline yesterday. Only this time, the selloff commenced from the opening bell, with the Dow Jones Industrial Average falling by more than 300 points within the first 90 minutes of trading. Behind the latest selloff were concerns about trade, as tensions build with Europe and China, worries about the Federal Reserve's FOMC meeting, which began yesterday and will conclude this afternoon, renewed tensions in the Middle East (especially between Israel and Iran), and some earnings uncertainty, as reporting season continues.
As for the Fed, expectations are that the central bank will hold the line on borrowing costs at this meeting. However, there is some uneasiness about what it will say about the economy and inflation when it releases its monetary statement this afternoon. Most pundits believe the Fed will cite increasing economic growth and somewhat higher inflation (price growth hit the Fed's 2% target in March) to suggest that at least two new rate hikes (it raised rates in March) will be forthcoming--likely in June and September. The question is what the Fed opts to do in December. Right now, a majority of Fed watchers expect it to hold off at that time.
Then, there is earnings season, which has been positive, in the main, with nearly 80% of the companies reporting to date beating consensus expectations for the recently ended opening period. However, many contend that such positive expectations had been built into the market at this level, with concerns growing that future comparisons will not be as easy. Already, we are starting to see some sales misses among several high-profile health care names. But the big concern was the Fed and what the bank will say later this afternoon about future monetary policy. We think it will strike a fairly benign balance.
The pullback then gathered momentum as the early afternoon got under way and a 250-point, or so, decline in the Dow quickly became one north of 350 points. The downturn would then moderate as the afternoon proceeded. It should be noted that the drop was most serious in the blue chips, with the selloff ascending 1.4% in the Dow at that time. The declines in the S&P 500 and the NASDAQ, meantime, were more contained, as were the setbacks in the smaller-cap indexes. Still, the selloff was broad, with nine of the ten leading equity groups in retreat in mid-afternoon, while losing issues held a two-to-one advantage on the Big Board.
As noted, the market's declines narrowed notably, with the Dow's loss more than halved as we entered the final two hours of trading, while the NASDAQ, on tech strength, moved onto the plus side of the ledger. The improvement continued into the final hour of trading, with optimistic expectations and a solid gain from tech icon Apple Inc. (AAPL – Free Apple Stock Report), which reported after the close of trading yesterday, helping to lift the NASDAQ nicely into the plus column as the session wound down. Still, it was largely fears about what the Fed would say later today that kept the bulls in check, especially on the Dow.
The split verdict would continue down much of the stretch, with the Dow staying in the minus column, albeit by less and less as the session concluded, while S&P 500 turned positive and the NASDAQ extended its gains, finally closing up by an eye-catching 64 points. The Dow's loss, once more than 350 points, was whittled down to just 65 points, as the Street awaited word from Apple. As to that tech behemoth, it reported results that pleased Wall Street and the stock jumped by another $6.00-a-share, or so, in after-hours activity.
Finally, there is the economy to consider, and here, the news was mixed yesterday, with the Institute for Supply Management reporting that its survey on manufacturing activity had advanced at a somewhat more restrained pace in April, with a survey score of 57.3. That was off from the prior month's reading of 59.3, but it again represented an expansion of the industrial sector. (Note: A reading above 50.0 notes an upturn in the manufacturing category.) We will get another key economic reading this Friday when the government reports on non-farm payrolls for April.
Now, a new day dawns, and to get an inkling as to where things are going, we look overseas to see that shares were lower in Asia overnight, while in Europe, the leading bourses are showing early gains this morning. As to our market, the early signs point to a higher start, buoyed, no doubt, by Apple's encouraging report. That likely higher start on Wall Street comes even as interest rates tick higher ahead of the Fed rate decision.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
