After The Close
The U.S. stock market largely shook off fears of a government shutdown on Friday, with the majority of equities advancing over the course of the session. The indexes were more mixed, especially early on, but the S&P 500 and NASDAQ 100 eventually realized solid gains in the afternoon hours, rising once more to new intraday highs in the final half hour of trading. The Dow was less impressive, but did rebound from a 60-plus point deficit and finished the day in positive territory, back above the 26,000-point threshold. Overall, gaining shares essentially doubled declining issues.
Generally speaking, investors were willing to look beyond the short-term implications of a partial suspension of government services due to sustained positivity on the tax front. The passing of the Tax and Jobs Act will ensure a 21% corporate rate, a prospect that has helped propel equity markets even higher in 2018. Today’s strongest performing sectors were the consumer goods, financials, and basic materials groups. In the coming months, the latter could see an accelerated rally if the White House elects to pursue the infrastructure stimulus that was touted on the campaign trail.
Looking at the weekly performance, we see a similarly modest-to-positive trend. The S&P 500 and NASDAQ managed to advance to new historic highs, while the Dow wrapped up the five-day slate roughly even.
Meanwhile, U.S. crude oil shed nearly 1% in per-barrel value. Concerns over domestic output levels continued to have a dampening effect on the market, which previously enjoyed a multi-week rally on hopes that rising international demand and a drilling accord from OPEC would help to further stabilize the oil trade. Wrapping up its first weekly loss of 2018, crude is now valued at $63.43 per-barrel.
Over the next several weeks, we expect corporate earnings to play a bigger role in trading. Developments from the political sphere may steal some attention, however, especially if more bipartisan showdowns occur as the two parties plant their flags ahead of the late-year election cycle. Stay tuned.
— Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Before The Bell
The stock market, up solidly on Wednesday, took something of a rest yesterday, as worries about a pending government shutdown, if a spending accord cannot be reached in Congress, increased. On point, after the Dow Jones Industrial Average had surged to a new 1,000-point plateau (above 26,000) in a record-low eight trading days, with the last of them seeing a more than-300-point rise, equities backtracked after a mixed opening. At the session lows in the morning, that 30-stock blue-chip composite had been off by nearly 170 points.
However, even the very real threat of such a shutdown--which could come as early as later today unless a short-term spending deal can be put together--could not shake the bull market up very much. Historically, though, most such shutdowns--and there have not been very many--have led to brief pullbacks in the stock market. Still, the apparent view is that even if there is such a shutdown, it would not be prolonged, and thus the damage would figure to be contained. Also helping the market is the fact that earnings have been notably higher than expected.
Here, for example, nearly 80% of S&P 500 companies that have reported have beaten estimates for the fourth quarter. The number is close to 90% on the revenue side. In addition to the good showing, many companies are suggesting that results for the new year will be compelling, boosted by the tailwinds of a better economy and lower taxes following the recent tax reform enactments. Still, for one day, at least, the sellers were predominant, with roughly twice as many stocks falling on the Big Board as rising during the day, with a majority of the 10 leading equity sectors losing ground.
Meanwhile, in other news, the government reported yesterday morning that privately-owned housing starts in December had come in at a seasonally adjusted annual rate of 1,192,000 homes. That was well off (8.2%) from the revised November tally of 1,299,000 properties. Also, building permits, a more forward-looking construction category was basically flat during last month, with permits at 1,302,000 homes. (The November tally was 1,303,000.) Still, even with this latest deceleration, the housing market remains rather strong and should again be a notable support for the economy.
Altogether, stocks limped into the close, falling back a little further in the last hour on those aforementioned shutdown fears. The divide between the Republicans and Democrats appears, if anything, to be widening. So, there is at least a reasonable chance a deal might not be reached today, which could mean the two sides will be negotiating over the weekend. Meantime, with the late selloff, the day saw the Dow fall by 98 points, while modest losses were inked by the S&P 500 and the NASDAQ. The S&P Mid-Cap 400 and the Russell 2000 faltered proportionately more, while losing stocks overwhelmed winners on the NYSE.
Looking out at the final trading session of the week, we see that stocks in Asia were higher in overnight trading, while the leading bourses are trending upward, as well, in Europe so far this morning. In other markets, oil, up somewhat yesterday, is rising again so far today, while interest rates, which rose above 2.61% on the 10-year Treasury note yesterday, are now trading at 2.63%. Finally, on a day with a lot more in the way of corporate earnings reports, but only a consumer sentiment reading on the business front, the U.S. equity futures are showing early gains ahead of the looming Senate vote on spending. Stay tuned.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
