After The Close
The stock market opened sharply lower this morning and was unable to reverse course too much in the afternoon. At the close of trading, the Dow Jones Industrial Average was down 363 points; the broader S&P 500 Index was off 31 points; and the NASDAQ was lower by 64 points. Market breadth was decidedly negative, as decliners outpaced advancers by a sizable margin on the NYSE. Most equity sectors retreated today, with considerable weakness in the energy and healthcare names. In contrast, the defensive utility stocks managed to move higher, as traders may have been feeling more risk averse. Overall, the weakness today was largely due to rising Treasury yields, with the 10-year Treasury note now passing hands at 2.73%.
Elsewhere, today’s economic news, while limited, was somewhat encouraging. Specifically, the Conference Board’s Consumer Confidence Index rose to a reading of 125.4 during the month of January, which was slightly better than had been anticipated. Tomorrow, Automatic Data Processing (ADP) will release its monthly employment figures. Pending home sales for the month of December are also due out. Furthermore, in the afternoon, the FOMC wraps up its two-day meeting with an interest-rate decision and some remarks.
Meanwhile, a few sizable corporations delivered their financial results today. Specifically, shares of Pfizer(PFE – Free Pfizer Stock Report) traded lower, even though the drug giant posted an upbeat report. In addition, McDonald’s (MCD – Free McDonald’s Stock Report) lost ground, despite providing a solid report. Of note, the market’s weak performance today probably overshadowed these issuances.
Technically, the stock market achieved solid gains for much of the month of January. In this context, the weakness exhibited yesterday, and again today, was understandable. It remains to be seen if a larger pullback starts to develop from here. While the market looks fully valued, institutions and retail investors likely have funds waiting on the sidelines, and this may provide some support for stocks.
— 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
Following another record-breaking session on Friday, in which the Dow Jones Industrial Average soared well over 200 points, a one-two punch hit the stock market yesterday morning. First, technology icon Apple Inc. (AAPL – Free Apple Stock Report) was hit hard by a report that it was cutting production of the iPhone X. The report noted that the company would pare output by 50% due to weak sales. Apple stock was down more than $4.00 in early dealings. More worrisome was the surge in bond yields, with the 10-year Treasury note climbing to a yield of 2.71% early in the day.
The increase in bond yields, which reflects mounting concerns about inflation, could at some point be competition for stocks. One of the pillars of this historic bull market has been the lack of alternatives on the fixed-income side. So, with Treasury yields just above 2.7%, and with the next psychological level on the note at 2.8%, there is some logical worry on the Street. The early pullback yesterday was indicative of such concerns. All told, the early setback pushed the Dow down by 160 points in the first 90 minutes of trading.
The stock market then continued lower into and through the lunch hour, as it was still being pressured by higher interest rates on the 10-year Treasury note. However, as the losses in Apple, once nearly $4.50 a share, eased back below $3.00, the pullback in the market began to lessen--especially in the NASDAQ. In all, that tech-laden index, once off some 45 points, recouped nearly all of its deficit. Overall, the big worry was the 10-year note. Also, there were concerns about the Federal Reserve meeting, which is starting today.
As to interest rates, most expect the central bank to hike borrowing costs three times this year, but a few pundits are looking for a more aggressive Fed to raise rates four or five times. The latest Fed monetary decision will be rendered tomorrow afternoon. In other developments, earnings continue to come in better than expected, with the key aerospace and defense maker Lockheed Martin (LMT) bettering revenue expectations and expressing optimism about 2018. So that stock rallied in trading yesterday.
Meanwhile, after that mid-session buying flurry, stocks settled back into a losing pattern during the afternoon, with worries about the Fed meeting taking on a larger role than satisfaction about the earnings outlook. So, stocks fell back to session lows, where they strayed into the close. When all of the numbers were in, the Dow was off by a session-worst 177 points, while the S&P 500 and the NASDAQ were down 19 points and 39 points, respectively. In all, it was the worst performance of the year to date.
Further breaking things down, all 10 of the major equity groups were lower on the day, with the biggest casualties being the energy, telecom, and utility sectors. Also, losing stocks outnumbered winning issues on the Big Board to the tune of a five-to-one ratio. Worse, in spite of the continuing bull market, the final tally showed more than 200 stocks hitting new 52-week lows on the NYSE, a large number for this extended a market rise, suggesting that there is some underlying weakness in the market.
Now a new day dawns, and along with the pending start of the Federal Reserve's FOMC meeting and additional trading in the Treasury note, we are seeing that stocks weakened in Asia overnight, following the declines in New York. In Europe, meantime, the key bourses are trading notably lower at this time. Meanwhile, Treasury yields, which closed at 2.70% yesterday, are now at 2.68%. Finally, U.S. equity futures are showing large losses at this time ahead of the Fed meeting and the market's open at 9:30 (EST).
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
