After The Close
The major U.S. indexes all opened higher on Thursday, before spending the rest of the day oscillating in up-and-down fashion. The S&P 500 and NASDAQ 100 each descended into negative territory with 90 minutes left in the session, before finishing the day around their respective breakeven lines. The latter was again held back by Apple (AAPL – Free Apple Stock Report), which has been coping with iPhone-related concerns for several days. Generally speaking, however, it seems that traders are mostly just taking advantage of an opportunity to collect some profits amidst elevated trading levels.
So far, Corporate America is delivering solid growth in the fourth-quarter earnings season. Investors are looking for signs of economic strength, as well as improved earnings outlooks due to the Tax and Jobs Act, before pushing equity valuations even higher. Today’s most prominent reporting companies were Dow components Caterpillar (CAT – Free Caterpillar Stock Report) and 3M (MMM – Free 3M Stock Report), both of which blew away estimates for the recently ended quarter. Their strength propelled the blue chip Index to an all-time high around noon, before it gave way to some broad-based selling in the afternoon hours. We believe sustained outperformance on the earnings front could help propel the market higher, notwithstanding intermittent profit taking.
The market sectors exhibited a similarly mixed-to-negative tone. Still, breadth was only modestly in favor of declining shares, which outnumbered advancing issues by a 1.4-to-1.0 ratio. Utilities and healthcare stocks were strong, but softness in most of the other industry groupings had an offsetting effect on the selective strength. Some concern about the weakness of the dollar also factored into the mixed tone to trading, as conflicting statements from Washington, coupled with the President’s trip to the World Economic Forum in Davos, Switzerland added a hint of political uncertainty to the session.
Meanwhile, domestic crude oil lost about a dime a barrel by the end of the day, despite spending a portion of Thursday well into positive territory. The reason for the downward swing was the up-and-down movement of the dollar, with the commodity peaking as the greenback hit its lowest point since 2014. But the selling was ultimately limited, and the price of U.S. crude oil finished the session at $65.51 per-barrel.
Looking out, we expect earnings season to be the biggest factor in trading through the first few weeks of February. Developments from Washington and on the business beat could steal some headlines, but we believe the market will be chiefly concerned with how Corporate America benefits from tax reform. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The raging bull market continued to rumble along yesterday morning, when a largely supportive earnings news backdrop helped to lift the 30-stock Dow Jones Industrial average to an early gain north of 180 points. The other indexes largely followed suit, although there was some weakness noted in the tech-laden NASDAQ. The strong advance for the Dow helped lift that composite to yet one more all-time high. The upsurge also was fueled by comments from some corporate leaders about the improving outlook for the U.S. economy, which many in the business world believe has been boosted measurably by the recent tax overhaul.
As to that economy, it received a dose of mixed news at 10:00 AM (EST) yesterday, as the National Association of Realtors released a report showing that sales of existing homes had fallen by 3.6% in December. That was a larger setback than the 1.5% forecast decline, but still wasn't sufficient weakness to alarm the housing bulls. That is because the supply of homes on the market dropped to a record low, pushing up prices and likely easing some first-time home buyers off to the sidelines. Also, November's housing sales tally was revised somewhat lower, but that earlier figure was still represented a 10-year high.
The housing news, when put into perspective, was still clearly supportive, and the stock market barely flinched initially. Meantime, yesterday's sales report will be followed this morning by a release on new home sales for last month. As to earnings, the Dow saw several reporting heavyweights issue their metrics yesterday. Overall, though, in spite of the Dow's aggregate strength in the early going, there were few headline makers on that composite, with most equities moving ahead nicely, but not dramatically so. Still, the advance was formidable, with the Dow moving up close to the 26,400 mark.
But this strong buying burst did not persist. Indeed, as we neared the noon hour in New York, the market softened noticeably, with the Dow's gain easing back to fewer than 50 points, while the other composites weakened aggressively, with the NASDAQ's losses swelling to over 50 points, at one time. Profit taking, selective earnings disappointments in a generally positive environment, and some concerns ahead of the global economic conference in Davos Switzerland over nationalism versus internationalism on the trade front caused some stir among traders.
The market weakened still further as the afternoon proceeded, with the Dow giving back all of the day's gain and falling by an additional 100, or so, points. The NASDAQ, under the most pressure, tumbled to a midsession loss of some 80 points, principally led lower by a three-point drop in shares of Apple (AAPL – Free Apple Stock Report), on concerns about upcoming iPhone sales. However, it is hard to keep the bull down for long. So, as we moved toward the final two hours of trading, the market turned again, with the Dow moving back into the black, while the S&P 500 edged into the win column as well.
In addition to worries about increasing nationalism and iPhone sales, Wall Street also was concerned about a possible deterioration in international trade relations, notably between our country and China. Overall, though, the market's midday setback would prove to be short-lived, as the optimism underpinning the long advance gradually would return, even with global worries, worsening trade relations, and rising Treasury note yields on the table. This comeback by the stock market, albeit selective at that time, would carry into the final hour of trading, before again wilting in the final few minutes.
Moving into the close, the stock market remained divided, with the Dow higher (coming in with a 41-point gain on the day), while the NASDAQ led the losers with a 45-point decline. The other indexes also were down. Now a new day begins, and we see that stocks were lower in Asia overnight, on a weaker dollar, while on the Continent, Europe's bourses are now trading with modest gains. Also, oil is up; Treasury yields, up to 2.66% yesterday, are now at 2.63%; and our equity futures are suggesting a higher open for the U.S. stock market when trading resumes.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
