After the Close
The U.S. equity markets moved sharply lower in the morning, and remained relatively weak throughout much of the afternoon. At the close of trading, the Dow Jones Industrial Average was down about 123 points; the broader S&P 500 Index was off 14 points; and the technology-heavy NASDAQ was lower by 47 points. The selling was widespread today, with losers easily ahead of winners on the NYSE. Furthermore, most of the major market sectors retreated, with notable losses in the energy and basic materials issues. In contrast, some of the consumer names displayed a degree of relative strength.
There were a couple of economic reports issued this morning. Specifically, personal income rose 0.3%, while personal spending increased 0.5%, for the month of December. These figures more or less matched expectations. Elsewhere, pending home sales rose 1.6% in December, which surpassed the consensus forecast. Tomorrow we will get a look at the Chicago PMI for January, along with a report on consumer confidence for the month. Meanwhile, the main news item will be released at the end of the week, when the government issues its employment report for the month of January.
Elsewhere, in the corporate arena, few leading companies weighed in with reports over the past 24 hours. However, tomorrow will be a much busier day, as we expect to hear from Exxon Mobil (XOM – Free Exxon Stock Report), Pfizer (PFE – Free Pfizer Stock Report), UPS (UPS) and Apple (AAPL – Free Apple Stock Report).
Technically, the market retreated today. Investors will, no doubt, continue to watch earnings season unfold, while getting acclimated to the new Administration in Washington. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EST
The U.S. equity market started the penultimate trading session of the month of January to the downside and the selling intensified further as the morning hours on the East Coast progressed. Near the noon hour, the Dow Jones Industrial, the NASDAQ, and the broader S&P 500 Index are markedly lower. The profit taking—the major averages started the week near all-time highs—was spurred by some nervousness in the investment community about what the executive orders on immigration, signed late last week, will have on the world’s equity markets and the multinational companies, many of which are domiciled in the Dow 30.
The Trump Administration’s immigration orders, which seek to ban travel to the United States from seven nations located in both the Middle East and Northern Africa, have been met with opposition from many prominent companies, including Apple (AAPL), Goldman Sachs (GS), and Starbucks (SBUX). This has had a negative impact on trading. There also is a sense that the investment community may be a bit upset that the executive orders so far have not focused much on economic policies. That said, the Trump Administration signed an executive order this morning to cut regulations on small businesses.
Meantime, the news from the business beat this morning was decent, but we do note that each of the reports did have some blemishes. Before the market opened,the Commerce Department reported that personal income rose 0.3% in December, while expenditures increased 0.5%. The investment community seemed to be focused on the income figure, which fell short of expectations and did not match the pace of expenditures. We also received data on pending home sales after the market opened that showed that pending sales increased by 1.6% sequentially during the final month of 2016. However, it should be noted that entry-level home sales fell, likely the product of the uptick in lending rates last month. In general, the economic reports, on a quiet day for earnings news, are not providing much support in a down tape.
From a sector perspective, all of the 10 major equity groups are trading in negative territory, with the biggest declines coming in the economically sensitive areas. We are seeing sizable selloffs in the energy, basic materials, industrial, and technology categories, with the stocks of many of the multinational companies leading the move lower in those groups. The declines in the higher-yielding areas are more modest, with the defensive-oriented utilities, telecommunications, and consumer staples getting some attention from investors looking to pare their risk equity risk exposure. The S&P 500 Volatility Index (or VIX) has spiked today, but it should be noted that it is off of a very low base.
Looking ahead to the second half of today’s session, it would appear that the bears are going to be very tough to beat, as most of the market fundamentals are pointing at a weak day for stocks. The S&P 500 Index and the NASDAQ are putting in their worst performances since early October, and the Dow Jones Industrials, which enters the second half of the trading day near session lows, failed to hold the 20,000 level this morning. Not surprisingly, declining issues are swamping advancers on both the NYSE and NASDAQ. 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
Before the Bell
The month of January, which has two trading days remaining, has been a solid one for those long equities. The Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index, which surged during the latter stages of 2016 following the U.S. Presidential Election, did not do well over the first half of this month, but have since rallied and are now looking at gains for the 31-day stretch. In fact, the three aforementioned averages hit new all-time highs last week, punctuated by the first move by the index of 30 bellwether companies above the 20,000 mark. Even more encouraging was the fact that the Dow was able to hold that level, finishing the latest five-day stretch of trading at 20,094.
There are a number of factors that are bringing more buyers into the market and making them more comfortable in adding risks to their portfolios. (The CBOE Volatility Index (or VIX), also known as the “fear gauge” enters the week at a very low 10.58.) Fourth-quarter earnings season, which has seen about two-thirds of the Dow-30 companies report their quarterly results, has been pretty supportive, with the majority of companies surpassing bottom-line expectations. The earnings news will remain heavy this week, which should continue to have an impact on the performance of the equity market. Likewise, the investment community has reacted somewhat positive to the news from Washington, with the expectation being that the Trump Administration will push for many business-friendly policies—including rolling backs in regulations and corporate tax cuts—that would boost the fortunes of both Corporate America and Wall Street.
On the other hand, the data from the business beat did not give equities much support last week, as it were a bit uninspiring. The headline report came from the Commerce Department, which noted that fourth-quarter GDP expanded at an annualized pace of 1.9%, which fell short of expectations. Likewise, the economy grew just 1.6% for the whole year, down from growth of 2.5% in 2015. Also a bit disappointing last week were reports of monthly declines in durable goods orders and new home sales. These releases were offset some by a jump in existing home sales and another strong reading on consumer sentiment from the University of Michigan. This week, we will get data on consumer confidence, vehicle sales, manufacturing and nonmanufacturing activity, and the much-anticipated report on employment and unemployment for the month of January on Friday. And just moments ago, the Commerce Department issued a decent report on personal income and spending. Specifically, personal income rose by 0.3% in December, slightly below the consensus expectation, while personal expenditures climbed 0.5%, matching the consensus estimates. While decent, we would like to see income growth at least match spending before we get more sanguine about our growth expectations for the U.S. economy in the near term.
Meantime, as noted above, another hot-button topic for Wall Street these days is the news emanating from the Trump Administration. To date, most of the headlines from the White House have had a positive effect on equity trading, as there is an anticipation that President Trump’s policies will be good for the business sector and will boost the U.S. economy in the coming years. The economically sensitive sectors, including the financial, basic materials, and industrial groups, have benefited the most since the November Presidential election. Conversely, the healthcare and some of the higher-yielding areas have not fared as well. Commentary about drug pricing by President Trump and the expectation that his Administration and the Republican majorities in the Senate and House of Representatives will move forward with the repeal of the Affordable Care Act have pressured the healthcare sector. Likewise, higher rates for fixed-income securities are hurting the higher-yielding equities, which are less attractive to income-oriented investors when fixed-income yields rise.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are presaging some profit taking for the U.S. equity market. This is not overly surprising after the market concluded last week at lofty perches. So far today, it has been a sea of red ink for international markets. The main indexes in Asia finished lower overnight, while the major European bourses are in negative territory as trading moves into the second half of the session on the Continent. Investors appear to be a bit unnerved by President Donald Trump's orders to curb immigration from certain countries. It has triggered uncertainty and protests across the world. This sentiment may have an initial negative impact on trading stateside, but our sense is that with the busy week ahead on both the economic and earnings beat, this issue will be quickly pushed to the back of investors’ minds as trading progresses this week. 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.
