After The Close
Stocks turned in a choppy session on Wednesday, rising sharply early before losing their gains along the way and ending in uneven fashion.
Some of the swings can probably be traced to word that the economy might not expand at all in the first quarter, if the partial government shutdown drags on. Kevin Hassett, the Chairman of the President’s Council of Economic Advisers, was quoted saying as much this morning.
Mr. Hassett was quick to add that second-quarter GDP would jump notably as spending is deferred, once the shutdown impasse is resolved.
But the parties involved have not shown signs of moving toward a compromise, leading Wall Street to feel less assured about near-term business prospects. Often times, first quarter GDP is subpar anyway, owing to poor weather conditions. The potential for little or no growth would likely ensure further volatility ahead.
There is also an increased sense that global expansion is waning. The trade dispute between the United States and China, and Great Britain’s planned exit from the European Union have raised questions about the extent that underlying conditions will support corporate earnings ahead.
As it turned out, the Dow Jones Industrial Average gained 171 points; the S&P 500 and the NASDAQ only rose slightly, though. The Dow Industrials’ outperformance was attributable to strong earnings reports from a few of its components.
But investors ended up playing defense for much of the day. That was evident in the bigger number of declining stocks than advancing issues on both the New York Stock Exchange and the NASDAQ.
In terms of the market’s sectors, perceived safe havens such as utilities and consumer staples showed relative strength.
Elsewhere, oil prices fell under $53 a barrel for the benchmark domestic blend, partly on the same concerns regarding growth that equities are facing. Quotations are being supported by pumping restraint on the part of an OPEC-led group that kicked in at the beginning of 2019. There are nevertheless concerns that demand growth will ebb somewhat in the months ahead.
Overall, it could be that stocks have established a trading range following their bounce back from the heavy selling that occurred late last year. In the meantime, earnings are front and center, with companies reporting favorable earnings and prospects usually seeing their stock prices rise.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
That news, plus data showing a sharp drop in sales of homes in December in our country, helped to send the Dow Jones Industrial Average down to a loss of 225 points after just about a half hour of trading. Wall Street, though, ever resilient, quickly stormed back, paring that deficit notably in the next half hour, so that as we passed the one-hour mark of trading, that 30-stock index was off just 125 points, and seemingly headed still higher. The NASDAQ, however, once down 90 points, was still off 75 points, or more than one percent. So, there were some doubts about a full-fledged comeback
Turning back to the aforementioned housing report, we see that sales of existing homes fell 6.4% in December after two straight monthly advances. The National Association of Realtors, the trade group putting out that key release, blamed higher mortgage rates during much of 2018 for the decline. In all, sales were off a full 10% from the year before, to 4.99 million. This report was closely scrutinized because two other major housing issuances, housing starts and new home sales, will not be coming out right now due to the continuing partial government shutdown.
Meanwhile, the buying flurry would come to a halt as we moved further into the morning, with the Dow soon dropping back to a loss of some 180 points on those global growth fears. The market then would meander about at these moderately lower levels for a brief span before some more aggressive selling would take hold. Expectations of a late-day rally would then fade as the session continued into the noon hour in New York. The weak housing data and some inevitable profit taking after the strong showing over the past four weeks were key factors, along with the global concerns, for the weakening performance.
In all, as we passed the noon hour and moved into the early afternoon, the Dow and the NASDAQ would tumble by more than 400 points and 140 points, respectively. As before, it was the global growth fears that were taking stocks down sharply. As to growth, it wasn't just China, but also South Korea, which saw its exports slide. Further the International Monetary Fund has pared its growth forecasts for 2019 and 2020. Thus, it seems as if there is a wholesale diminution in growth expectations worldwide. This entire dour picture continued to pressure stocks into the close.
Then, after the Dow tumbled to a session-worst decline of over 460 points, the market tried to make a comeback, and managed to do so with a nice buying flurry at the close. In all, the Dow would close off by 302 points, a formidable descent, but just two-thirds, or so, of the session's worst setback. The NASDAQ, though, would end near the session's lows, closing off 137 points. Losing issues would overwhelm housing stocks on this lower day, with just the late buying on the Dow giving some comfort to the bulls. Still, even with this setback, the market is up strongly this year to date.
Looking out on the second day of this holiday shortened week, we see that stocks were mixed in Asia overnight, while in Europe, the bourses are trading with early losses, for the most part this morning. Also, oil prices and Treasury yields, both lower yesterday as Wall Street swooned, are now showing gains this morning. Finally, and ahead of a number of earnings reports and the latest data on oil inventories, U.S. equity futures are suggesting a higher open when trading resumes this morning, boosted by a good reception from International Business Machine's (IBM – Free IBM Stock Report) latest results.
