1:35 PM EST
Following range-bound sessions on Monday and Tuesday, a sharp retreat on Wednesday, and a nice comeback yesterday, the equity market is selling off again today. The retreat, now some 600 points in the Dow Jones Industrial Average, has put the blue chips under water for the month of January. If this downturn holds, and there are less than three hours to go this month, it would be the first setback for the blue chips since October.
Here are the problems: First, there continues to be disappointing news on the vaccine front, both with the pace of getting shots in the arm and with the effectiveness of potential new vaccine entrants. Then, there is the frenetic retail activity is certain dangerously speculative stocks. Finally, valuations are extended and price-earnings ratios are well above average for so many issues.
Taken together, there is this sudden rush to cash in and that has now taken the NASDAQ down more than 260 points and the S&P 500 Index lower by 90 points.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have any positions in any of the companies mentioned.
Before The Bell
Another day another surge in volatility on Wall Street. Thus, after an unusually quiet Monday and Tuesday of trading this week in which the leading averages moved in an uncharacteristically narrow band, and a more than 630-point drop in the Dow Jones Industrial Average on Wednesday, the bulls came back yesterday, fashioning a 300-point gain in that 30-stock index. Seeming overreaction on the downside the day before likely whet the appetite of the bulls yesterday, and the market enjoyed a wire-to-wire win.
Now looking out at a new day, we see that the stock market is poised to start the new day on a down note. Relief that the market did not sustain the midweek move lower, comfort in the release of a lower-than-expected weekly jobless claims tally, and the Street's ability to press higher even after the release of some less-than-overwhelming tech earnings, helped lead the way higher. A dramatic pullback in the shares of GameStop (GME) helped improve sentiment, as well. That stock had surged on a short squeeze in recent sessions.
As to yesterday's strong showing, stocks jumped from the opening bell, with the Dow exploding higher, gaining as much as 650 points by mid-session. The advance would persist, but not at nearly that pace, in the afternoon, with the blue chips, as noted, eventually losing more than half their best advance. The NASDAQ, buffeted by some tech losses, would add a more modest 66 points, after earlier being up by more than 230 points. One casualty in the tech space was Apple (APPL); another was Tesla (TSLA).
Regarding the economic news, the government noted that the nation's gross domestic product, a dramatic 33.4% winner in the third quarter, advanced by a much more subdued 4.0% in the final span. We think a lesser gain, or perhaps none at all, is likely ahead during the current term. Meantime, on a more optimistic note, weekly jobless filings dipped to 847,000 in the week ended January 23rd. That was under the 875,000 tally forecast. In a third release, data showed the leading economic indicators rose less in December than in either October or November.
Looking ahead, the week upcoming will see the release of data on manufacturing activity, the non-manufacturing sector, weekly jobless filings, and next Friday the issuance non-farm payrolls for January. Such reports should give us the first detailed look at the ebb and flow of the economy in the early weeks of 2021.
– Harvey S. Katz, CFA
At the time of this article's writing, the author had a position in AAPL.
