After The Close
The market futures started out slightly positively for a brief spell last night as a continuation of yesterday’s rally seemed likely today. However, once news broke that the United States military had killed General Qassem Soleimani of Iran in a drone strike, the futures market fell quickly, while oil prices rose as much as 4% overnight. Traders were unclear how and when Iran would respond and how this affects the geopolitical climate. Thus, many reduced their exposure to risky assets. Once the stock market opened, the composites remained lower, and the Dow Jones Industrial Average fell by as many as 368 points from the previous close, while the S&P 500 dropped as much as 36 points. The market then started to pare these deficits, even though the ISM Manufacturing Index recorded its weakest number in more than ten years. In the second half of the day, the stock market bounced back some and recovered a portion of the losses, but remained notably weaker. All told, the Dow closed lower by x234 points, while the S&P 500 fell 23 points.
Market breadth was quite neutral, as advancers and decliners did not outnumber each other by a significant amount. REITs were among the best performers on the day, aided by a decline in interest rates. On the other hand, materials stocks underperformed the broader indices.
In commodity news, oil prices rose today, as traders priced in higher levels of uncertainty and risk, which could include disruption of global supplies. Meantime, U.S. Treasury bond yields were lower today as a move into the safe-haven asset occurred. Too, the yield curve flattened a bit, which is usually unfavorable for financial earnings. Gold prices rose due to higher levels of economic uncertainty, while the VIX Volatility Index shot up, reflecting higher demand for options protection.
Looking ahead to next week, several economic data reports are due out, including the ISM nonmanufacturing index and the payrolls report later in the week. Too, we think greater scrutiny will be given to the Energy Information Administration’s weekly report on crude oil inventories given global uncertainty. Meantime, quarterly earnings releases will start to flow in, including one from Dow-component Walgreens Boots Alliance (WBA – Free Walgreens Boots Alliance Stock Report). Too, any changes in the situation with Iran or any new developments in trade with China will likely affect trader sentiment next week.
– John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell
As for the positive backdrop, the market was being underpinned by optimism that a limited trade understanding will be brokered in the next two weeks with China. Also, there continues to be positive news on the macro front, where recent data, including the latest survey on consumer sentiment, points to additional healthy levels of spending by the public. As the consumer accounts for some two-thirds of the nation's gross domestic product, such activity is critical to the overall health of the economy. Meanwhile, on the data front, the Labor Department reported that first-time jobless claims came in at 222,000, a bit below expectations.
The market would strengthen further as the morning concluded and the afternoon began, with the Dow's advance hitting a little more than 200 points, after a brief mid-morning pullback. Things then would stabilize into the early to mid-afternoon. However, as the final two hours moved into high gear, the advance strengthened further in the larger-cap indexes, with the Dow climbing towards a 300-point gain and the NASDAQ's advance topping 100 points. The upsurge was being led by some of last year's winners, such as Apple Inc. (AAPL – Free Apple Stock Report) and Walt Disney (DIS – Free Disney Stock Report), with the former topping the $300-a-share mark in a late buying binge.
But this was not a tide that lifted all boats, as the S&P Mid-Cap 400 and the small-cap Russell 2000 lost ground modestly for much of the session, while we saw setbacks in Dow component Dow Inc. (DOW – Free Dow Stock Report) and DuPont (DD). Elsewhere, the market's advance would strengthen rather dramatically in the final 15 minutes, with the DJIA's advance eclipsing 300 points en route to a closing gain of 330 points. The S&P 500 also would climb strongly, with an advance of 27 points, while the tech-driven NASDAQ would soar by 120 points.
However, the late market surge could not lift the Russell out of its doldrums, but that composite did manage to approach breakeven at the close. Meanwhile, the late buying did push the S&P Mid-Cap 400 into the green, albeit modestly. Also easing were bond yields along with the VIX volatility index. Looking ahead to a new day, we are scheduled to get the first look at manufacturing in the new year, as the ISM will report on this core industrial sector a little later this morning.
Finally, as to the day ahead, the early read on the equity futures suggests that the new day will start sharply to the downside after a United States air strike killed Iran's top military leader. Oil prices, meantime, are rising with that development. Stay tuned.
