After The Close
The stock market started positively today, as a new BREXIT deal was tentatively announced between the United Kingdom and the European Union. This move improved sentiment for global trade and growth, and the Dow Jones Industrial Average rose by as many as 110 points while the other indices were up in tandem. However, an overbought condition occurred, and the markets posted more modest increases throughout much of the session. The Dow turned negative, though only for a brief spell. The Dow was down about 32 points at its nadir. The markets then rebounded a bit into the close, but never hit their early morning highs. All told, the Dow closed higher by 24 points, the S&P 500 was up eight points, and the NASDAQ gained 33 points.
Moreover, market breadth was nicely positive, as advancers outpaced decliners by a 2.2-to-1.0 ratio. Healthcare stocks were among the best performers on the day. Technology stocks were among the weakest performers.
In commodity news, oil prices rose today, as demand expectations for global trade rose due to the potential BREXIT deal. Meantime, U.S. Treasury bond yields increased modestly, as traders moved away from the safe-haven asset. Still, yields did not move much, and the market is generally pricing in a high likelihood of another U.S. Federal Reserve rate cut at its October meeting. The VIX Volatility Index was just about flat today, suggesting little change in demand for options protection.
Looking ahead, tomorrow will have some economic data released, including leading indicators for September. Meantime, a slew of quarterly earnings reports is on the docket for tomorrow. These include Dow-components American Express (AXP – Free American Express Stock Report) and Coca-Cola (KO – Free Coca-Cola Stock Report). Too, a few more financial companies will release results, while several companies are slated for release after the bell today. All told, we think that trading tomorrow will hinge on earnings data and any potential movement in the U.S. trade negotiations with China.
– John E. Seibert III
At the time of this article’s writing, the author held positions in some of the companies mentioned.
Before The Bell
On Tuesday, a handful of large, household names reported their third-quarter earnings results, and the stock market soared on their generally upbeat issuances. The good profit news then continued yesterday. However, in the latter case, the upbeat tidings were shared by the unexpected news that retail sales had fallen in September. Specifically, forecasts had been for a 0.3% increase in such activity; instead, sales fell by a like amount, with marked weakness in activity at building materials stores, gasoline stations, department stores, and even over the Internet, heretofore an area of notable strength.
So, instead of following up on the prior day's strength, stocks faltered during the morning, albeit just slightly. As we approached the noon hour in New York, for example, the Dow Jones Industrial Average, a 237-point winner the day before, was trading near dead center, after being lower by more than 80 points at the outset of trading. The S&P 500 Index and the NASDAQ were both weaker. In the meantime, the erstwhile headline issue, the lingering trade dispute between China and the United States seems to pause more at this time, with the details still needed to be worked out before a truce is finally, reached.
The market then would stay mixed into the lunch break. On the plus side, company profit reports are coming in quite strong, but the retailing data, along with other consumer issues raise concerns about a possible recession down the road. We still think such worries are exaggerated, and feel that the economy will, muddle through, even if banged around a bit. As for China, reports are that this giant economic powerhouse wants U.S. tariffs on its goods rolled back before it will move forward. Regarding earnings, a key support for the market this week, banking giant Bank of America (BAC) posted solid results and its stock gained.
The stock market would retain its mixed character into the afternoon, with the Dow staying in the minus column until the start of the final two trading hours, while the S&P 500 and the NASDAQ would continue into the loss column after that point. But the Dow's ascent would be limited. Still, the market was buoyed for a time by the constructive news of a tentative settlement of the work stoppage at General Motors (GM). The strike has been a modest depressant for the economy, so a conclusion to that issue would lessen the chances for a recession, and likely lift stocks.
This ho-hum action then would carry into the final hour, with the Dow once more joining the other composites in the minus column, but not convincingly. With an eventual trade deal with China and a generally positive third-quarter earnings reporting season now somewhat discounted, the logical thing is for attention to become focused on the economy, where an outcome is less predictable, in particular after the release of the disquieting data on retail sales yesterday morning. So, equities continued to wilt as the final hour moved along. This underwhelming performance then would continue into the close.
As the final bell sounded, the Dow would be off 23 points; the S&P 500 would trend lower by six points; and the NASDAQ would give back 25 points. Meanwhile, the spread between gainers and losers was fairly narrow, with the notable laggard being the basic materials stocks, where, for example, one-time industrial stalwart U.S. Steel (X) gave back more than 8%, ending relative close to its 52-week low. In all, it was an unimposing session, but not one to overly concern the bulls. True, the retail report was an issue, but unless it is followed up by a chorus of weak data, the calls for recession should stay muted.
Looking ahead now to a new day, we see that stocks were mixed in Asia overnight; in Europe, the Continent's bourses are now moving higher on indications of a tentative deal on Brexit. In other markets, Treasury note yields, off slightly yesterday, are gaining on the Brexit news and oil prices are edging up. Adding it all up and taking into account additional business tidings and Brexit, we would expect the penultimate trading session of the week to commence on a nicely positive note.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
