After The Close
The equity markets began a new week on Wall Street with a lackluster showing. At the end of trading, the Dow Jones Industrial Average was down 177 points; the broader S&P 500 Index was off 19 points; and the technology laden NASDAQ was lower by 39 points. Market breadth showed a negative bias, too, with losers easily outpacing winners on the NYSE. Further, all of the major stock market sectors lost ground, with pronounced weakness in the energy and telecommunications issues. Meanwhile, the healthcare names managed to display some relative strength.
Elsewhere, there was just one notable economic news item reported this morning. Specifically, personal incomes rose 0.4%, with a similar gain in spending, during the month of December. These figures more, or less, met expectations. Tomorrow, we get a look at the Conference Board’s latest monthly consumer confidence figures. Looking ahead to the end of the week, the government will release its January employment report, and most traders will be concentrating on this key piece of information, as they speculate about possible shifts to the Federal Reserve’s policies.
Finally, the fourth-quarter earnings season continues. Today, shares of Lockheed Martin (LMT) traded higher in response to an encouraging report. Elsewhere, in the M&A area, shares of Dr Pepper Snapple Group (DPS) moved up on acquisition news.
Technically, the stock market has done quite well in the month of January, and today’s pullback comes as no surprise. In fact, given recent gains, some distribution might even be a needed development.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
With only three trading days left in January, it is looking like another record will be topped at a time when new record highs seem to be a daily occurrence for the major equity averages. Indeed, the U.S. equity market will probably finish the month higher for the 15th-straight month, dating back to November 2016. It has and continues to be a phenomenal run for the bulls since the 2016 Presidential Election. Since Donald Trump won the general election, stocks have soared on the hopes—and eventually implementation—of a number of business-friendly initiatives, which have been greeted kindly by both Corporate America and Wall Street. The investment community has been most emboldened by the drastic cutback in financial regulations and the passage of the most comprehensive tax-reform plan in decades, the latter of which cut the corporate tax rate from 35% to 21% and lowered taxes for more than 80% of Americans. President Trump’s business-friendly policies, along with a strengthening U.S. economy, a still-accommodative Federal Reserve, and strong earnings results from the corporate world, appears to be the perfect cocktail for investors. That has certainly been on display again, with the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index up 7.7%, 8.7%, and 7.5% year to date, respectively.
Friday’s performance on Wall Street was another good one for investors, with respective outsized gains of 224, 95, and 34 points for the aforementioned indexes. The advances in the small- and mid-cap sectors were more contained. Overall, advancing issues led decliners by a comfortable margin on both the Big Board and the NASDAQ, and all of the 10 major equity groups finished in positive territory, with the leadership coming from the technology, healthcare, and industrial sectors. On the final day of trading last week, the bulls were emboldened by another encouraging round of earnings news, including a strong report from semiconductor giant and Dow-30 component Intel Corp. (INTC – Free Intel Stock Report) after the closing bell on Thursday afternoon. The Intel news more than offset a disappointing quarterly report from Starbucks (SBUX), and played a huge role in the advances for the Dow 30 and the NASDAQ Composite. The news last week from the Dow-30 companies was mixed, with good reports from Intel and UnitedHealth Group (UNH – Free UnitedHealth Stock Report) matched by underwhelming results from GeneralElectric (GE - Free GE Stock Report) and earlier in the reporting season from International Business Machines (IBM – Free IBM Stock Report). In general, though, it was still a good week for earnings results and provided support for equities. The fourth-quarter earnings reports will remain heavy this week, led by reports from 10 Dow-30 components, including the latest results from technology behemoth Apple (AAPL – Free Apple Stock Report) and the prominent oil and drug making components. Our sense is that the data from Corporate America will continue to prove supportive for the U.S. stock market.
Likewise, the data from the business beat is pouring in as the month draws to a close. On Friday, the headline report came from the Commerce Department. Specifically, the government reported its first snapshot on fourth-quarter GDP, which showed that the nation’s output expanded by an annualized rate of 2.6% in the final three months of 2017. The figure fell a bit short of the consensus expectation, but nevertheless made for a decent reading. Investors were encouraged by the sharp increase in the consumer sector, which augurs well for the coming months, as the consumer accounts for roughly two-thirds of the nation’s economic output. The gains in the consumer sector were not all that surprising, as the Conference Board’s Consumer Confidence Index remains near a multiyear high. Also during the most recent five-day stretch, the investment community received decent reports on both existing and new home sales. This week, the news on the economy will go into overdrive, with data due on consumer confidence, manufacturing activity, as well as the latest figures on employment and unemployment. Too, the next two-day Federal Reserve FOMC meeting commences tomorrow morning and culminates with a statement from the central bank on monetary policy due at 2:00 P.M. (EST) Wednesday. The consensus is that the lead bank will hold rates steady, but the investment community may be more interested to hear what stance it takes with regard to future interest-rate hikes.
Just moments ago, the Labor Department, which will be busy over the next five days, reported it latest data on personal income and spending. Specifically, personal income increased $58.7 billion (or 0.4%) in December, while personal consumption expenditures increased $54.2 billion (or 0.4%). Overall, it was another sign that the U.S. economy is strengthening, as personal incomes rose on a sequential basis, driven by increase in wages and salaries and personal interest income. However, investors should note that the increase came at the expense of savings, which dropped to a 10-year low. This could be a troubling sign for future consumption and economic growth. The report has had little effect on pre-market action.
Turning to the week at hand, we are seeing some profit taking so far today, with the main indexes in Asia finishing lower overnight and the major European in the red as trading moves into the second half of the session on the Continent. Those tidings appear to be spilling over to the United States; with less than a half an hour to go before the start of the new trading week stateside, the equity futures are indicating a modestly lower opening for the U.S. stock market. Stay tuned.
— William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
