After The Close
The futures market started higher, as stocks rebounded on reports that China would enact more stimulus, after softer trade figures in December were issued. The market slid close to breakeven levels in premarket on weaker-than-expected fourth-quarter earnings from JPMorgan Chase (JPM – Free JPMorgan Stock Report), however. Stocks started to climb in the early portion of the regular trading session though, as earnings reports from other banks and airlines showed solid improvement. These led the Dow Jones Industrial Average to rise by around 190 points, while the S&P 500 was up by some 30 points. However, the markets tumbled briefly when a vote on the Brexit deal, negotiated by Prime Minister Theresa May, was soundly defeated. Too, her coalition government now faces a no-confidence vote, though it is unlikely to be unseated. Still, the indices gained back most of the lost ground rather quickly. All told, the Dow closed the day higher by 156 points, the S&P 500 was up 28 points, and the NADSAQ gained 118 points.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 1.7-to-1.0 ratio. Healthcare stocks were among the best performers on the day, helped by UnitedHealth Group’s (UNH – Free UnitedHealth Stock Report) strong quarterly performance. Technology and communications equities were not far behind, aided by good price movement some high profile stocks. Meantime, materials stocks were among the weakest on the day.
In commodity news, oil prices were higher, as they continued to rebound from December lows. This was likely helped by a better outlook for demand from China. In addition, U.S. Treasury bond yields were modestly higher on the day, as the yield curve steepened some. The VIX Volatility Index was lower, as demand for options protection fell.
Looking ahead, tomorrow will be a busy day for economic news, as retail sales for December are expected to be reported. In addition, the Energy Information Administration is slated to release the weekly change in crude oil inventories. Too, earnings season has started, and a large number of financial companies are expected to report fourth-quarter results. These will be headlined by Dow component, Goldman Sachs (GS – Free Goldman Stock Report).
- John E. Seibert III
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Concerns about the partial U.S. government shutdown, which is now the longest in history, and worries about China's economy, which is slowing even more than forecast, combined to push stocks down sharply at yesterday's open. Specifically, the shutdown is now in its third week and neither side yet seems willing to compromise, so it just goes on with no end in sight. As to the China issues, economists were surprised by the unexpected drop in imports and exports from that country. The negative impact of the trade war appears to be a big factor here.
So, the U.S. equity market, after indicating a materially weaker opening in the pre-session hours, did start out sharply to the negative side, with the Dow Jones Industrial quickly falling to a loss of 230 points within minutes after the open. A proportionately larger deficit was inked by the tech-driven NASDAQ, most likely because of the ill tidings out of China. The losses then eased off somewhat, but the overall drift of the market was downward after what has been a relatively good run thus far in the new year.
Meanwhile, in addition to news out of China and the concerns about dysfunction in Washington, the Street also is occupied with earnings season, which kicks off in earnest this week. Here, expectations are reasonably strong, with consensus calling for a low double-digit advance. However, in light of expectations that GDP growth will be slowing in the months to come, forecasters are projecting a notable deceleration in profit growth beyond last year's fourth quarter. Thus, earnings guidance will be especially closely scrutinized.
As to the equity market, after that first rush of selling and some backing off thereafter, stocks ended the first half hour moderately in the red, with the Dow off by some 130 points. But the NASDAQ was off by more than 70 points, or just over one percentage point, a sizable backtracking. The market then continued to steady itself as we neared the noon hour in New York, with the Dow's deficit easing to fewer than 100 points for a spell before there was a bit of additional, albeit not very convincing, selling as the morning wound down.
There would then be some subsequent buying as the afternoon began with the Dow's loss shrinking further into the 50-60-point area. The other indexes also narrowed their deficits. Even with this late-morning, early afternoon which will feature reports from the financial and technology sectors over the next week, or so, buying, there continued to be trepidation ahead of the start of earnings season. As to these reports, Citigroup (C), the first of the big banks to report earnings, exceeded Wall Street's expectations. Indeed, the stock rose on those results.
The market would then spend the remainder of the day's session moving just modestly lower, with concerns about earnings, the shutdown, and the global economy front and center. By the close, the market would suffer its second decline in as many sessions, but with just an aggregate bias to the downside. In all, the Dow would surrender 86 points, while the NASDAQ would give back 66 points. Losses also would be sustained by the other indexes and a majority of the stocks on the Big Board, to the tune of more than three-to-two.
Now, a new day is upon us, and to get a sense of where we might be headed, we look over at Asia where stocks were up in the overnight hours. In Europe, meantime, the leading bourses are showing little early movement. In other markets, oil is ahead nicely and Treasury yields, up narrowly yesterday, are now struggling for direction. Finally, U.S. equity futures are suggesting a higher opening this morning as the government shutdown lingers on with no end yet in sight.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
