After the Close
Following a difficult week on Wall Street, U.S. equity trading was mostly mixed on Monday. The major indexes began the day in the red before paring the majority of the losses. The market sectors were equally divided, with gains in the basic materials, non-cyclical goods, and telecommunications industries offset by weakness by the technology, financials, and energy segments. Overall, advancing and declining stocks were even.
With a dearth of economic releases and earnings reports to peruse, traders were mainly concerned with Washington, where recent controversies have stoked doubts over the Administration’s ability to implement key reforms. High turnover in the advisor ranks, coupled with the President’s criticized response to the last weekend’s tragedy in Charlottesville, Virginia, may further cloud the outlook on tax, regulation, and infrastructure legislation. These campaign promises were the main catalysts for the market’s historic rally since November’s election, so the growing uncertainty of the introduction of these measures is largely to blame for the recent selling pressures.
Meanwhile, oil took a step back today. Traders were likely feeling opportunistic amidst higher valuations following the late-week recovery in that commodity market. U.S. crude per-barrel shed more than 2% on the day. Still, signs continue to point to a gradual easing of inventory-related pressures that have held back oil prices for some time. U.S. rig count fell for the second-straight week, while OPEC appears resolute in its attempts to address oversupply in its member nations. The latter may prove to be easier said than done, though, especially following last week’s concerning report about Chinese demand trends.
By the closing bell, sentiment amongst the indexes had brightened somewhat. The Dow and S&P 500 each wrapped the session in positive territory, while the tech-laden NASDAQ recovered most of its losses. The rest of the week boasts updates from the business beat (durable goods orders, existing home sales data) and the Federal Reserve’s Jackson Hole summit, which will each hold some influence in trading, too. But the political front will be the main force in the market, with additional clarity on the Administration’s strategy being one way for the bulls to sustain their late-day rally into the week. – Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 11:35 AM EDT
The major U.S. equity indexes, fresh off of a difficult fortnight of trading, started the new week on a mixed note, but as the session has progressed, the selling has resumed. There was not much in the form of fresh data to draw the attention of investors away from the dysfunctional political scene in Washington and the fast-approaching Federal Reserve confab in Jackson Hole, Wyoming later this week.
The market after a phenomenal run for the bulls since last November’s presidential election is starting to show signs of fatigue, which often brings out the sellers and the profit takers. Investors should note that the biggest correction in the last year has amounted to around 3%, so the recent selling does bear watching. The market continues to worry that recent commentary from the White House, particularly about the tragic event in Charlottesville, Virginia, will slow and/or impede President Trump’s ability to get some of his business-friendly agenda passed by Congress. Speaking of President Trump, news surfaced this morning that the Administration has launched an investigation into China’s trade practices.
As to the market specifics, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index are all again in negative territory. If this trading pattern continues, it would result in the third-consecutive losing session for Wall Street. On point, there is underlying fatigue in the market, as noted by the small-cap sector underperforming and the number of new lows leading highs. As for today, declining issues are once again outpacing advancers on both the Big Board and the NASDAQ, with the margin roughly two to one on the latter exchange.
From a sector perspective, the spread between up and down arrows is rather narrow. On the downside, we are seeing selling in the highly scrutinized energy, financial, and technology sectors. Conversely, the basic materials and the higher-yielding groups are in favor. The commodities are getting a boost from the recent interest in gold, a safe-haven holding, and a strong performance for copper, which is benefitting from the improved economic data out of China, a huge consumer of the red metal. Likewise, the interest in the higher-yielding utilities, consumer staples, and telecom groups is mostly due to their defensive-oriented appeal.
Looking ahead to the second half of the trading session, we think, given the lack of any major news today on the business and earnings beat, investors will continue to focus on the White House, which over the last fortnight has not been good for the market. There has been a lot of shakeup in the White House staff, which, as noted above, may make it tough to get some of the Administration business-friendly policies passed in Congress. In general, investors are a bit unnerved by the recent turmoil in Washington and showing their disapproval in recent trading. Stay tuned. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
The major U.S. equity indexes are about to start the new week coming off their worst fortnight of trading in quite some time. The most recent five-day stretch saw a spike in volatility, and the major averages shed more of their value. There were a number of factors that came together to weigh on the market, most notably a negative reaction to President Trump’s commentary on the tragic event earlier this month in Charlottesville, Virginia and emerging worries that the fallout will be that the President and Congress will be unable to pass some of his business-friendly agenda, including tax reforms. That, along with worries about what the Federal Reserve’s possible decision to begin reducing its $4.2 trillion balance sheet by selling Treasury bonds and mortgage-backed securities will have on the U.S. economy, pressured the world equity markets.
Adding the aforementioned factors up, we see that the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index are all down around 2% over the last fortnight of trading. Even more discouraging was the selling that we saw into Friday’s closing bell, and that came despite news that President Trump’s top aide Steve Bannon was removed from the White House staff, likely bringing with him his protectionist economic policies. The initial sense on Wall Street was that this would be good for the market (the averages rallied on Friday shortly after the news broke), as it would likely mean that President Trump’s top economic advisor and National Economic Council Director Gary Cohn will remain in his position, which would be good news for Corporate America, Big Business, and Wall Street. This situation, though, remains very fluid and may mean more twist and turns for the near-term performance of the world’s equity markets. Mr. Cohn’s commitment to the Administration bears watching, as many pundits believe that if he was to resign from the White House staff, it would lead to a notable correction in the equity market.
The political scene in Washington D.C. overshadowed many of the other variables that would likely guide trading. The fact that it was a slow week for earnings, only added to the attention given to the dysfunction in the nation’s Capitol. Still, we did get some reports from the retailing sector, which did not give much support to equities. Among Friday’s laggards were The Gap (GPS), Hibbett Sporting Goods (HIBB), and The Foot Locker (FL). The poor performance of the latter stock hurt shares of shoe and apparel giant NIKE (NKE - Free NIKE Stock Report), which weigh on the Dow Jones Industrial Average on Friday. Another weak performer was Deere & Co. (DE).
Looking ahead to the week at hand, we still expect the world’s equity markets to be driven by the ongoing political news from Washington D.C. Overall, we think that any news or actions seen as possibly impeding the Administration’s ability to get some tax reforms passed will have on detrimental effect on the U.S. equity market. The market has risen significantly since last November’s Presidential Election on hopes that the new Administration will get some business-friendly policies passed, including the discussed tax reforms. That said, we do get a few reports on the U.S. economy, including data on existing home sales and durable goods orders. Investors also should be aware that the Federal Reserve’s annual Jackson Hole, Wyoming confab will take place later this week, which may bring more clues about how the central bank will proceed with regard to monetary policy over the remainder of this year.
With less than an hour to go before the commencement of the new trading week stateside, the futures are indicating a flattish opening for the U.S. equity market. Overnight, the main indexes in Asia were mixed, while the major European bourses are modestly in the red as trading enters the second half of the session on the Continent. The concerns about the Trump agenda and the upcoming Fed meeting in Wyoming will likely be the driving forces behind trading this week. Stay tuned. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
