Before The Bell
Wall Street started the trading session yesterday on a positive note, as the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ all rose modestly following a mixed performance on Monday. Propelling the stock market higher at the outset was a bullish report on housing activity. Specifically, U.S. housing starts rose almost 23% in July from June to nearly 1.50 million annual units. Building permits, a more forward-looking metric, gained strongly as well as demand rose across the board.
This solid economic news would help push the S&P 500 Index to a record high close. In all, that composite, which had plunged in March on worrisome data on the COVID-19 front, is now knocking on the door of 3,400 after rising eight points yesterday. The NASDAQ also did well, while the Dow pulled back modestly losing 67 points on the day after an early loss of about 175 points. Another casualty on this second straight mixed session was the small-cap Russell 2000, which surrendered 16 points.
As to the S&P 500, it reached that new milestone after having flirted with a record during the past week. Behind this record high has been a run of good news, including the aforementioned strength in housing and generally better figures on manufacturing, the services sector, industrial production and retail spending. As to the nation’s economy, we will get the latest Federal Reserve minutes from its last FOMC meeting this afternoon. Tomorrow, we will get a look at the leading economic indicators and Friday will bring data on existing home sales for July.
Looking at the stock market, Wall Street has turned in a V-shaped recovery since late March. On point, the Dow Industrials have gone from 29,500 down to 18,200 and back up to close to 28,000. The S&P 500 and the NASDAQ have done even better notching all-time highs. This performance would indicate that the stock market is not a reflection of the actual economy, which has been much slower to recover. True, GDP is likely to gain some 20% this quarter. But that would still leave it well into negative territory for the nine months.
Clearly, investors are looking ahead by as much as a year with respect to the economy. They also might be discounting a potential vaccine for the coronavirus. Looking at a new day now, and ahead of the Fed minutes and possible stock market action, we see that stocks in the Asia Pacific region were mixed in dealings last evening, while the U.S. equity futures, following little overall direction at the outset of last night's trading, have turned a bit higher in the pre-market hours this morning. So, it could be a day of further gains.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
