After The Close
In a session mostly dominated by the bulls, each of the large-cap indexes set all-time intraday trading highs on Friday before seeing their gains moderated in the lead-up to the closing bell. The optimism was led by the basic materials sector, with consumer cyclicals and technology stocks also doing a large part of the legwork. The market appears to be pricing in the growing sentiment that U.S. corporations will deliver better-than-expected growth in the nascent reporting season. For the day, advancing shares outnumbered declining issues by a ratio of 1.5-to-1.0.
Investors were mostly concerned with third-quarter earnings releases. Recent sessions have centered on the financial sector as a number of banks updated traders. Though sentiment surrounding JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) and Citigroup (C) was moderated by weak trading segment revenues, Bank of America (BAC) share gains have somewhat helped to offset the tepidness. Over the next several weeks, most of Corporate America will report their quarterly data. Overall, the market expects to see modest gains across the board. However, there is one area of potential weakness in small-cap equities, which analysts expect to perform in a mixed fashion. Accordingly, the Russell 2000 failed to garner the same momentum registered by the large-cap composites.
Meanwhile, the business beat offered some positivity today. The pre-market unveiling of updated retail sales and consumer prices set the groundwork for today’s bullish trade. The releases were solid, with the former advancing above expectations in a welcome turnaround to the disappointing August tally. The 0.5% reading on the Consumer Price Index indicates that inflationary headwinds are not yet an urgent concern. These factors likely bolstered the case for a federal funds rate hike from the Federal Reserve when it meets in December.
There was one political development worth noting today. Though it failed to reveal itself meaningfully in most market sectors, President Trump’s announcement that he intended to reform the nuclear deal with Iran did cut into the oil industry’s gains today. Strong imports in China and a generally improving supply environment helped to sustain a full-day increase. So while U.S. crude finished the session 1.7% higher (at $51.45 a barrel), the insertion of another political development into the market may lend itself to more ups and down in the coming sessions.
At the end of the session, the Dow, S&P 500, and NASDAQ each sustained full-day advances, modestly below the record-high levels reached earlier in the day. Looking out, the remainder of the month’s trade will hinge on Corporate America’s third-quarter performance and near-term outlook. Given the currently elevated valuations, we would not be surprised to see some opportunistic investors collect profits in the weeks ahead, just as they did in the closing minutes of today’s session. Additional influence may come in the form of geopolitical developments, especially pertaining to Iran and North Korea, updates on tax reform from the White House, as well as further clarification from the Fed on both its monetary policy and leadership outlook, as current Chair Janet Yellen’s term winds down.
– Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Mid-Day Update - 12:10 PM EDT
The stock market is making modest progress this morning, as traders turn their attention to the latest batch of corporate profit reports. As we pass the noon hour in New York, the Dow Jones Industrial Average is ahead roughly 36 points; the broader S&P 500 Index is up five points; and the NASDAQ is higher by 21 points. Market breadth is favorable, with winners nicely ahead of losers on the NYSE. Leadership can be seen in the technology names and in the basic materials issues. The healthcare group is weak today.
Traders received a few economic news items this morning. Specifically, retail sales advanced 1.6% during the month of September, which was slightly ahead of expectations, and a considerable improvement over the lackluster showing in August. Further, the Consumer Price Index (CPI) rose 0.5% during the month of September, which was a tame reading and likely suggests that inflation is not yet a problem. Finally, business inventories increased 0.7% in August, meeting the consensus view. Elsewhere, the consumer still seems to be feeling upbeat, according to the University of Michigan’s latest survey.
Meanwhile, the third-quarter earnings season is just getting started. Today we heard from a few more large financial names. Specifically, shares of Wells Fargo & Co. (WFC) are trading lower, as the bank delivered weaker-than-anticipated profits, due, in part, to higher legal costs. In contrast, shares of Bank of America (BAC) are up slightly today, in response to a respectable release. Further, PNC Financial (PNC) stock is roughly unchanged, even though that company delivered a decent set of numbers. Next week many more blue chip names will weigh in with their results, and that should shed some light on the broader corporate outlook.
Technically, equities have been holding up well lately. However, the third-quarter earnings season may have to be somewhat impressive, given current equity valuations. Elsewhere, traders will likely want to see some progress on the Administration’s tax reform plan, as well.
— 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
The major equity indexes enter the final day of the trading week off of a slightly weak session on Thursday. Yesterday, the averages started the session modestly in the red, none too far removed from the neutral line, as the first batch of third-quarter earnings news failed to ignite any further buying on Wall Street. That, coupled with the higher producer (wholesale) prices, data that could give the Federal Reserve more ammunition to tighten the monetary reins at its December FOMC meeting, was too much for the bulls to overcome.
For the day, the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 Index finished 32, 12, and four points lower, respectively. That said, the spread between winning and losing issues was mixed for the day, with more advancing stocks on the NYSE, but more decliners on the NASDAQ. From a sector perspective, there were more down than up arrows among the 10 major equity groups, and the moves to the downside, led by the telecommunications group, were a bit more pronounced than the gains.
As noted above, the third-quarter earnings news did not provide a boost to equities. But investors should note that the reports from banking giants JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report) and Citigroup (C) were not bad, as both posted better-than-expected bottom-line results. However, the data , which showed weakness in the trading segments, left investors wanting more and both stocks finished in the red, with Citigroup shares down more than $3 a share yesterday. Today, the banking sector will once again dominate the earnings headlines, with the results from fellow banking giants Bank of America (BAC) and Wells Fargo Company (WFC) the focus of the investment community. And on that front, the news was mixed. Bank of America, the second-largest U.S. bank by assets, reported a 15% jump in quarterly profit, as the bank kept a tight lid on costs and benefited from higher lending rates. Conversely, Wells Fargo reported lower-than-expected revenue, and earnings hurt by a one-time charge. Revenues totaled $21.9 billion in the third quarter, down 2% from the previous-year period.
We got some important news on the economy this morning. At 8:30 A.M. (EDT), the latest data on retail sales and consumer prices, two reports that are likely to be used by the Federal Reserve in its formulation of monetary policy, were released. On the retail front, the Commerce Department reported that U.S. retail and food services sales for September 2017, adjusted for seasonal variation, holiday and trading-day differences, but not for price changes, were $483.9 billion, an increase of 1.6% from the previous month, and 4.4% above September 2016. Likewise, the Labor Department reported that consumer prices for all urban consumers rose 0.5% in September on a seasonally adjusted basis. Over the last 12 months, the all items index rose 2.2%. The lion’s share of the increase was driven by gasoline prices, which jumped 13.1% last month. It was responsible for about 75% of the seasonally adjusted all items increase. We think these reports add more fuel to the fire that the Federal Reserve will raise the federal funds rate by 25 basis points during its December FOMC meeting.
With less than an hour to go before the commencement of trading stateside, the equity futures are presaging a higher opening for the U.S. equity market. In the early going it is looking like the bulls will hold the upper hand, helped by today’s generally positive earnings and economic news. Our sense is that the financial and consumer discretionary sectors will draw the most attention when the market opens, given the above cited banking and economic news. Meantime, overseas, the news has been positive, with the main indexes in Asia finishing higher overnight, while the major European bourses are holding gains as trading moves into the final stretch of the week 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.
