After The Close
The markets started modestly lower today, as fear about the Unites States’ ability to strike a trade deal with China increased. This was partially the result of yesterday’s news that the U.S. has targeted notable phone-maker Huawei in a probe of the company. However, sentiment recovered throughout the early portion of the day, as good economic data included lower-than-expected initial jobless claims. Also, earnings releases from a few financial companies showed solid year-over-year improvements. Meantime, the Dow Jones Industrial Average started trending notably higher. In the latter part of the trading session, a report broke that the U.S. could ease tariffs on goods from China during negotiations. This caused the indices to spike, with the Dow rising by as many as 267 points, briefly eclipsing its 50-day moving average. The S&P 500 and NASDAQ followed suit. However, the full move higher was short lived, and those additional gains were given back somewhat. All told, the Dow finished the day up 163 points, the S&P 500 was higher by 20 points, and the NASDAQ gained 50 points.
Additionally, advancers outpaced decliners by a 2.2-to-1.0 ratio, suggesting market sentiment was very positive. Materials and industrials equities were among the strongest performers on the day, while communications stocks were among the weakest, though only on a relative basis.
In bond-market news, U.S. Treasury bond yields spiked when the report of potentially easing tariffs occurred, as a move toward risk occurred. In addition, the VIX Volatility Index ended the day lower, as demand for options protection fell.
Looking ahead, a few economic reports will be released tomorrow, including the preliminary University of Michigan consumer sentiment survey for January. Too, capacity utilization and industrial production for December are scheduled. Additionally, tomorrow is a big day for fourth-quarter earnings reports especially in the financial sector. Also, we think that trading will be impacted by a few key quarterly performances expected after the closing bell, namely Netflix (NFLX) and Dow component American Express (AXP – Free American Express 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
Just like a good prizefighter, the stock market continues to come off the ropes to score big wins. That happened on Tuesday, after a weaker performance to start the new week on Monday, and the good showing continued into yesterday morning.Good earnings news from financial services giant and Dow Jones Industrial Average component Goldman Sachs (GS – Free Goldman Sachs Stock Report) was a big factor in the early win yesterday, as was upbeat news on homebuilder sentiment. In all, with that one-two punch in hand, the Dow jumped out to a gain just north of 150 points in the first half hour of trading. A five percent advance in Goldman was a key element in that rise.
Good news on the financial services front was a big part of those early gains, as fourth-quarter earnings season rolls along. The tech-laden NASDAQ, meantime, did even better in the early going. The airlines also were doing well. Thus far, some 85% of the companies in the S&P 500 Index, which have reported results, have surpassed profit forecasts for the fourth quarter. The nice comeback by Wall Street following the massive selloff down the home stretch last year is in large part a function of the continuing strong earnings expectations. Now, the challenge will be to keep the beat going.
Of course, not all of the news is good. There is still the Brexit vote controversy pressuring the global markets, as the future of the May-led government is in doubt in Great Britain. Then, there is trade, where earlier optimism that a deal could soon be struck with China is fading somewhat. Also, the government shutdown lingers on, and the two sides have seemingly grown even further apart in recent days. Then, there is the nation's economy, where expectations for a modest deceleration earlier may now evolve into forecasts for a deeper thaw given the penalty exacted by the aforementioned shutdown.
Still, the bulls kept coming yesterday, as investors preferred to see the glass as half full rather than half empty. Most groups were participating in the early advance, with the Dow going further north of 24,000 in the process. The upturn then would persist into the lunch hour, as optimism over earnings would seemingly put other ills on the back burner, if just momentarily. Our sense is that we will need a steady chorus of good earnings news and supportive statements from the Federal Reserve to keep the ball rolling in the absence of some resolution of the shutdown or the lingering trade dispute with China.
With regard to the Fed, the nation's central bank, it issued its Beige Book compilation of the nation's economy at 2:00 PM (EST) yesterday. That summation took on added import, as key releases, such as monthly retail sales, which also were due out yesterday, were not released due to the shutdown at the Commerce Department. Overall, the Beige Book suggested that the nation's economy was holding its own, but there were some concerns being voiced by the political instability being seen, as well as by indications that some areas of the country were beginning to see some choppiness.
The stock market, meanwhile, would continue rising until near the close, when some profit taking set in, after having been buoyed by the strong earnings at Goldman and by gains in other market sectors. In all, the Dow would lead the way and help to secure a 142-point win for the 30-stock composite. All told, it was the second strongest session this week, and helped to further underscore that the market's bullish resolve was still in place. Today will see additional earnings releases, as the Street seeks to keep the rally going. Looking ahead, tomorrow will bring data on consumer’s sentiment and on industrial production.
Looking out on a new day we see that stocks were lower in Asia overnight; in Europe, the leading bourses are thus far tracking downward, as well. Also, oil prices are falling and Treasury note yields, up somewhat yesterday, to show a return of 2.73% on the 10-year note, right now are easing a bit. Finally, after being boosted by two days of good earnings news, the U.S. equity futures are pointing to a weaker start this morning. Can the Street make it three up days in a row? We shall see. Stay tuned.
– Harvey S. Katz, CFA
