After The Close
The major U.S. indexes wrapped up the week on a strong note, with the Dow Jones Industrial Average, S&P 500, and NASDAQ each setting historical highs late on Friday afternoon. The forces at play during today’s session were an early-morning GDP update from the Commerce Department and a slew of earnings from Corporate America. While the former revealed a solid rise in the fourth quarter, the 2.6% figure was below the consensus estimate of 3.0% and broke a two-quarter streak of 3.0%-plus economic expansion.
But the bulls’ rally in the opening hours was accelerated by a generally better-than-expected spate of December-period earnings. Of the companies that published performance updates today, Honeywell (HON) and Intel (INTC - Free Intel Stock Report) were particularly strong. The chipmaker’s stock hit a 17-year high after it beat estimates and raised its dividend, while Honeywell shares rose on optimistic guidance and a repatriation announcement.
Today’s bell-to-bell positivity was also supported healthcare stocks and a rebounding technology sector. In fact, only the utilities grouping failed to finish the week’s final session with a sizable gain. And while overall market breadth was even, the earnings-related advances of large-cap stocks signals to us that equities have room to run in the coming weeks.
Meanwhile, U.S. crude oil hit its highest per-barrel closing level in three years. The dollar’s weakness helped to offset some mounting concerns that this year’s demand environment may not be as robust as predicted. The prospect of higher deliveries, specifically to China, has been driving the commodity’s valuation higher in recent months. So, we wonder if this bullish streak may be challenged in the near future should the dollar bounce back.
As the closing bell neared, the three large-cap composites continued their upward ascents. Looking over the next several weeks, we expect earnings to remain the primary factor influencing trading. Intermittent news from the political sphere and business beat will play a role, with policy implementation efforts by the White House and the GOP likely to become a headline event at some point, as well. 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
It continues to be all about earnings for Wall Street, as Corporate America is still routinely beating consensus profit expectations for the recently concluded fourth quarter. On point, yesterday morning saw two old-line industrial giants and components of the Dow Jones Industrial Average--namely Caterpillar (CAT – Free Caterpillar Stock Report) and 3M Company (MMM – Free 3M Stock Report)--weigh in with excellent results. These upbeat earnings statements, which helped 3M shares rise above $250, and CAT stock gain at first, aided the Dow to climb to a better-than-100-point initial advance, before some notable backtracking set in after the opening few minutes.
In fact, as we passed the first half hour of trading, the Dow had more than halved its early gain and the S&P 500 had turned slightly negative, as had the S&P Mid-Cap 400. However, once it became clear that this early fade would not get very far, the bulls came roaring back, pushing the indexes firmly into the black once again. The main reason for the latest multi-session surge on Wall Street has been that corporate earnings have routinely beating consensus estimates. And even in those instances where this hasn't been the case, the weaker showings largely have come from companies that were already having difficulties in recent quarters.
Meanwhile, the market picked up further as the morning progressed, with the Dow once again surging to a triple-digit win as we hit the one-hour mark of trading in this volatile session. The bulls did even better as we moved into the afternoon, with that 30-stock composite rising to an all-time high of 26,458. That was achieved as the Dow roared to a gain just north of 200 points. However, unlike many sessions thus far this year, this was not a tide that lifted all boats, as the other indexes stayed near, and in some cases, below the breakeven line. Also, the NYSE boasted a few more losing than gaining issues, at that time.
To be sure, while the major inducement to buy has come from earnings, there also has been the economy to consider. Here, the latest news yesterday was mixed. To wit, the Conference Board reported early yesterday that its leading indicators had registered a strong 0.6% increase in December, following a 0.5% advance in November. In October, the gain had been an eye-catching 1.3%. This constructive trend would suggest the nation's economy will continue to growth through the first half of 2018. The economy had ended 2017 on a solid note, with back-to-back-to-back solid performances over the final three quarters of last year.
In other news on the business front yesterday, it was reported that sales of new single-family homes in December were at an annual rate of 625,000 properties. That was 9.3% below the revised November tally of 689,000. One reason for the sluggish showing is the inadequate supply of property for sale. That should keep demand up along with housing construction. Overall, the economy is on sound footing, and assuming no widespread weather-related opening-period disruptions, the nation's gross domestic product could gain upwards of 3% in the current stanza.
Returning to the stock market, it pulled back one more time as we moved into the final 90 minutes of the trading session, before regrouping at the close to end mixed, overall. All told, the Dow, boosted by gains in a number of blue chips, led by 3M, finished ahead by 141 points, while the S&P 500 Index added two points. However, small losses were sustained by the other composites. In after hours, chipmaker and Dow-30 issue Intel (INTC – Free Intel Stock Report) reported gains in sales and earnings and raised its quarterly distribution by 10%, sending the shares modestly higher in after-hours trading.
Now, the week concludes, early indications were mixed out of Asia, where stocks trended unevenly in overnight dealings. Shares in Europe are moving higher, however, at this hour, while Treasury yields, off slightly yesterday, are edging upward so far this morning. Finally, U.S. futures are showing moderate gains ahead of the open.
Finally, in a key report issued within the past hour, the Commerce Department reported that U.S. GDP had increased by 2.6% in the fourth quarter. That was well below the 3.0%% rise that had been forecast. This is the advance report and will be followed in a month by a revision. This gain, meanwhile, broke a two-quarter run of growth that had exceeded 3%. Helping the latest quarter were gains in personal consumption expenditures, nonresidential fixed investment, and exports. Limiting the increase was a deceleration in residential fixed investment and state and local government spending. Higher imports also hurt. Overall, the gains in the futures eased somewhat after the release.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
