After The Close
The stock market started in the red today, as fears about rising global tensions took center stage. Ayatollah Ali Khamenei of Iran vowed that “harsh revenge” would occur against the people that killed Qasem Soleimani, the former leader of Iran’s Qud Forces. This statement hurt trader sentiment and caused them to price in a higher level of risk. The Dow Jones Industrial Average quickly found itself down 138 points, while the other indices were lower in tandem. However, the composites reached an oversold condition and quickly bounced, partially aided by news that the ISM non-manufacturing index recorded better-than-expected figures in December. This surprise helped the composites to recover most of the daily losses, while the NASDAQ broke even and started trading in the green. The rest of the day could be characterized by largely sideways action, though the NASDAQ fell into the red in the final portion of the session. All told, the Dow closed lower by 120 points, the S&P 500 fell nine points, while the NASDAQ was down three points.
Moreover, market breadth was slightly negative, as decliners outpaced advancers by a 1.3-to-1.0 ratio. Materials stocks were among the strongest performers on the day, while REITs were among the weakest, hurt by an increase in interest rates.
In commodity news, oil prices were slightly lower after several days of positive price action. This outcome appears to be profit-taking. Meantime, the price of gold continued to march higher as economic uncertainty increased. It has recently been setting multi-year highs, as traders look for another option besides the stock market and bonds. Moreover, U.S. Treasury Bond yields were higher today as a move away from the safe-haven asset occurred. The VIX Volatility Index ended the day lower after a brief move up in the first part of the trading session, which suggests that demand for options protection was higher in the morning.
Looking ahead, tomorrow’s docket will be full of economic data releases, including the Energy Information Administration’s weekly report on crude oil inventories. Also, a report on consumer credit will be released, which should help show the state of the consumer. Additionally, there will be a few quarterly earnings reports tomorrow, including one from Dow-component Walgreens Boots Alliance (WBA – Free Walgreens Stock Report) before the market open. Too, we expect trading tomorrow will be affected by any developments concerning geopolitical risk.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
It has been a wild three trading days to start 2020. After the bulls and bears split the first two trading sessions last week (the major equity averages surged on Thursday before reversing course and heading lower on Friday), the two were heard from yesterday. The major indexes were down sharply at the start of the session on geopolitical concerns, but the bulls were able to battle their way back as the day progressed and a late surge in buying ensured that the bears were not going to make it back-to-back wins. At the closing bell, the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index were 69, 51, and 11 points, respectively, to the upside. Our sense is that investors following Friday’s selloff and yesterday’s early move lower saw a bargain hunting opportunity in a market that has provided very few on the way to a number of record highs during the latter stages of 2019.
The major-market moving news in recent days has come from overseas. Indeed, geopolitical tensions spiked late last week when reports surfaced that a Trump Administration ordered an airstrike that resulted in the death of Iran’s top general Qassem Soleimani, who was behind assaults on U.S. interests and the deaths of many Americans overseas. The attack and the subsequent heightened tensions between the U.S. and Iran unnerved investors who worried that the fighting could disrupt the world’s oil supplies and ultimately hurt the world’s largest economies. Until late yesterday morning, the news pushed investors toward safety, with the more defensive oriented sectors, including the utilities, and gold holdings garnering increased investment support.
At the close of trading yesterday, the market metrics, though, were in favor of the bulls. The majority of the 10 major equity were in positive territory, while the spread between advancing and declining issues favored the bulls. The big winner was once again the energy sector, while the basic materials group stumbled.
Looking to the day ahead, the escalating geopolitical tensions in the Middle East will remain the focus of Wall Street, but we will also get a few important reports from the business beat that investors will keep close tabs on. At 10:00 A.M. (EST), the Institute for Supply Management will release its monthly reading on nonmanufacturing activity, and the consensus is that the December figure will show an increase in the services sector. And just moments ago, the Commerce Department released the latest trade gap figures. Specifically, the goods and services deficit was $43.1 billion in November, down $3.9 billion from revised $46.9 billion October figure. The impact of ongoing tariffs was notable in the data, as November exports were $208.6 billion, $1.4 billion more than the October figure. Conversely, November imports declined by $2.5 billion sequentially, to $251.7 billion.
With less than 60 minutes to good before the start of the new trading day, the equity futures are presaging a relatively flat opening for the U.S. stock market. So far overseas the trading has been mostly positive. The main averages in Asia finished in the black overnight, while the major European bourses are higher, as trading moves into the back half of the session on the Continent. 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.
