Before The Bell
The winning streak continued on Wall Street for much of the session yesterday. Indeed, after gaining nicely last week, and advancing further on Monday, the stock market was off and running again yesterday, with the Dow Jones Industrial Average quickly jumping out to a-more-than 350-point advance. The S&P 500 Index closed in on a record high, meantime. Only the NASDAQ, which until recently had been a stock market leader, lagged behind throughout the day on further weakness in technology, most notably shares of Apple (AAPL).
Then, after that weak close, which saw the Dow Industrials lose 104 points and the NASDAQ drop 186 points, the presumptive Democratic nominee for President, Joe Biden, selected California Senator and former challenger for the nomination, Kamala Harris as his running mate.
Meantime, earlier in the day, it had been optimism about the economy, somewhat better news on the COVID-19 disease front (where total infections were continuing to ease), hopes on the stimulus side, and news that Russia claimed to have a successful vaccine to treat the coronavirus that had encouraged the bulls. As for the economy, recent sessions have seen good news on manufacturing activity, the services sector, and employment. Then, yesterday morning, the Labor Department noted that the Producer Price Index had jumped by 0.6% in July--the most in a year and a half.
Clearly, this report lessened the chances for disinflation, which has been a major worry for the Federal Reserve. However, we see no reason that this issuance will alter central bank monetary policies. On point, the Street seemed to take this increase in stride (a rise of 0.3% had been the consensus forecast). In June, the PPI had increased by a much more modest 0.2%. Also, core inflation, which backs out the volatile food and energy components, rose just moderately last month.
Meanwhile, stocks also rallied on vaccine hopes, although there was little clear evidence that Russia's claims of a successful preventive was on the mark. More testing regarding that vaccine's effectiveness still is needed. As to individual stocks, the recently better tone on the economy initially helped cyclical issues, such as Boeing (BA), Caterpillar (CAT), and Raytheon (RTX). The airlines also pushed higher on the upbeat business tone and hopes for further fiscal stimulus.
As the session moved toward its latter stages, this early optimism faded and did so rather abruptly, with the Dow starting its descent shortly after 2:00 PM (EDT), before really hitting the skids in the final hour of trading, finally ending the session near the day's lows. One reason for this late selling was a report that there was an apparent drop in Apple's iPhone sales in China. That issue would fall by more than $13 a share. Then, after the close, high-flying electric car maker Tesla (TSLA) announced a 5-for-1 stock split. The futures, in response, gained ground during the early evening. Tesla pointed higher as well.
Looking out at the new day now, and after the late swoon yesterday and early evening gains, the equity futures are suggesting a materially higher start this morning. That likely uptrend followed gains in Asia overnight and in Europe so far this morning.
– Harvey S. Katz, CFA
At the time of this article's writing, the author had positions in AAPL.
