After The Close
The U.S. markets started lower today, as fears about a global slowdown increased. This was partially caused by the IMF cutting its 2019 global growth forecast. The indices trended downward throughout early trading, as existing home sales in December were far weaker than expected. The move lower continued throughout the afternoon, as a news story broke that the U.S. had cancelled a trade meeting with China. That increased fears about the possibility of a deal with that country. The Dow Jones Industrial Average fell by as many as 462 points, while the other indices were lower in tandem in a broad market selloff. However, an oversold condition was reached in the final hour of trading, and prices bounced modestly from there. All told, the Dow finished the day lower by just about 302 points, while the S&P 500 was off by 38 points, and the NASDAQ fell 137 points.
Meanwhile, market sentiment was decidedly negative, as decliners outpaced advancers by a 3.9-to-1.0 ratio. Utilities stocks were among the strongest performers, though only on a relative basis. Conversely, communications and industrial equities were among the weakest.
In commodity news, crude oil prices fell nearly 2.0%, as global growth fears caused market participants to worry about oversupply. In addition, a move toward safe haven assets occurred, causing U.S. Treasury bond yields to fall. Too, the VIX Volatility Index rose as demand for options protection rose.
Looking ahead, a notable amount of economic news will be released tomorrow, including the Energy Information Administration’s status report on crude oil inventories. In addition, earnings will continue to be at the forefront of the market, as Dow-component United Technologies (UTX – Free United Tech. Stock Report) will report quarterly results before the opening bell. Also, trading tomorrow will likely be affected by International Business Machines’ (IBM – Free IBM Stock Report) fourth-quarter results, which were released after the closing bell today.
- John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell
The stock market will open for trading shortly following the long three-day weekend that culminated yesterday with the observance of the birthday of Dr. Martin Luther King. Overall, meanwhile, it was a happy respite for the bulls, who managed to string together four straight winning sessions on the backs of strong earnings from the bank sector early in this stretch and optimism on a possible trade breakthrough later in that time period. The latter resulted from the suggestion by the Treasury Secretary that Washington was considering lowering or even eliminating tariffs on goods from China as a way of hopefully reaching a permanent trade pact.
As a result of this suggestion, voiced last Thursday afternoon, Wall Street put on a late-week show, with the Dow Jones Industrial Average climbing by more than 160 points on the penultimate trading day of last week. Moreover, that composite quickly jumped out to a similar-sized uptick on Friday morning. Meanwhile, whereas early in the week the gains were helped along by the banking and financial stocks, Friday's early sprint was led by industrials with international exposure, namely Boeing (BA – Free Boeing Stock Report) and Caterpillar (CAT – Free Caterpillar Stock Report). Also, after this early spurt a report came out suggesting China may offer a way to reduce the U.S. trade deficit.
With this latter news item in hand, the market sprinted to morning highs with the Dow surging to a gain north of 220 points. Strong advances also were tallied by the S&P 500 and the NASDAQ. Of course, nothing as yet is etched in stone and other Administration officials continue to play down such suggestions. Also helping to rally the market were comments from New York Federal Reserve President John Williams who called for patience and good judgment before raising interest rates. The market would jump even further after those reassuring words.
In other news, the Federal Reserve Board reported that industrial production rose by 0.3% in December; a rise of 0.2% had been the consensus forecast. This economic component, meantime, moved up by 3.8% on an annualized basis last month. Also, capacity utilization for the industrial sector advanced by 0.1% in December, to 78.7%. This report, however, had little overall impact, as the Street was wholly focused last Friday on the trade situation with China. Also, in a less welcoming report, the University of Michigan reported that its survey on consumer confidence fell sharply this month, likely because of the continuing government shutdown.
Then, in late morning, China suggested that it might be open to taking in more U.S.-made goods as a way of reducing our trade imbalance. That suggestion, albeit not finalized as yet, gave stocks an added shot in the arm, and the averages ran up to their session highs. The strong gains, which had the Dow trading with an advance north of 300 points, would largely persist though the session's end. It seems that even the long weekend could not dent the increasing optimism on the Street. The day's advance was broad, with most stocks and groups participating.
The uptrend would then continue into the close, and when all of the numbers were tallied up, the Dow would end matters ahead by 336 points; the S&P 500 would tack on 35 points, bringing that more broadly configured index up past its 50-day moving average; and the NASDAQ would add 73 points. Gains also would be tallied by the small- and mid-cap composites. In all, the stock market put in a most constructive week, with four straight winning sessions making the late-2018 setback seemed more and more as though it was a distant affair.
Looking ahead to a new week now, and checking the economic calendar, we will be getting data issued on sales of existing homes later today and a report on the leading indicators on Thursday along with weekly figures on new jobless claims. Meanwhile, in market activity so far this morning, shares in Asia were lower in overnight dealings; while in Europe, the leading bourses are tracking downward, as well, thus far this morning. Elsewhere, oil prices are weaker on global growth concerns and Treasury note yields, up nicely on Friday, are backing off so far this morning. Finally, activity among the futures suggests a weaker opening here when trading resumes shortly on our shores.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
