After The Close
The stock market opened lower this morning, weakened further around noon and into the early afternoon, but managed to firm up slightly at the end of the day. At the close of trading, the Dow Jones Industrial Average was down 327 points, after being off some 400 points; the broader S&P 500 Index was off 40 points; and the technology heavy NASDAQ was lower by 158 points (a 2% drop). Market breadth showed widespread selling, with declining issues outnumbering advancers by a margin of over 3 to 1 on the NYSE. Furthermore, almost all of the major equity groups declined today, with steep losses in the technology names. In contrast, the defensive utility issues managed to mount a modest advance, as traders looked for safe havens.
In economic news, initial jobless claims declined to 210,000 during the week of October 13th. This was a better reading than had been expected, and suggests that the job market is still in good shape. Additionally, the Conference Board’s index of leading indicators advanced 0.5% during the month of September, which was in line with the consensus view. Tomorrow, we get a look at existing homes sales for September.
In the corporate arena, a few large names delivered earnings reports over the past 24 hours. Of note, shares of United Rentals (URI) moved lower today, as investors seem to have concerns about the company’s outlook. Things went better for Phillip Morris International (PM), as shares of the tobacco giant were up nicely on a solid report. Tomorrow, we will hear from Procter & Gamble (PG – Free P&G Stock Report) and Honeywell (HON).
Technically, the stock market remains volatile, as traders are in need of some direction. For now, it seems that concerns about rising interest rates and unsettled trade disputes with China are overshadowing good corporate profits.
- Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
2:20 PM EDT
Just two days after the Dow Jones Industrial Average had soared by 547 points, on slightly diminished interest-rate fears, the bears are at it again, this time driving the aforementioned blue-chip composite down by 450 points at the session nadir thus far.
And once more it is interest-rate jitters that are doing in the tired bulls. To wit, after the market had tumbled last week, as yields on the 10-year Treasury note climbed to a seven-year high of 3.25%, hawkish comments released yesterday in the Federal Reserve minutes from its last FOMC meeting, have the stock market on the defensive again.
In all, as we head into the final two hours of the trading day, the Dow is still off by 370 points and the NASDAQ, under pressure from a slumping technology sector, is lower by 155 points.
- Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The bulls, who helped stocks rebound strongly on Tuesday, with the Dow Jones Industrial Average surging 547 points, in the best showing since last March, saw that momentum come to a halt early yesterday morning. Importantly, the catalyst for the buying on Tuesday, earnings releases from a succession of high-profile companies, several of which are domiciled on the blue chip composite, could not rally the market early yesterday. The difference this time was the absence of that Dow support, as old-line tech giant IBM (IBM – Free IBM Stock Report) stock tumbled after the company missed on the revenue line.
The early drop in that tech behemoth, to a new 52-week low, took about 70 points from the Dow, which fell more than 200 points in the first half hour of trading. Helping to keep the bears somewhat at bay was a strong showing by fellow tech provider Netflix (NFLX), as the streaming giant posted third-quarter earnings that exceeded expectations. Upbeat comments from an investment house also helped the stock. A number of other companies, meantime, also bettered expectations, helping to keep the morning decline in some check. However, the IBM revenue miss continued to be offsetting, leaving the Dow well into negative territory.
Meanwhile, on the data front, the government reported that housing starts fell 5.3% in September, from August, to an annualized build rate of 1,201,000 homes. Still, that total was up 3.7% from the year before. Expectations had been for starts to have totaled 1.210 million homes. Building permits, meantime, a more forward-looking metric, came in at 1.241 million units. That was off just negligibly from the preceding month. Looked at another way, although the starts total was fairly high, it also was the third lowest tally of the year to date, further suggesting that second-quarter GDP growth of 4.2% might be the high point of 2018.
As to the market, the major theme yesterday morning remained earnings, as the economy again took a back seat. Also, last week's sudden surge in Treasury note yields, to 3.25%, has not carried further, as yet, with yields having since eased back to 3.15%. That, too, was helping to underpin the equity market at times yesterday, although the earlier jump in borrowing costs and the likelihood that the Federal Reserve will hike rates in December will continue to pressure stocks at certain intervals. Meantime, the Dow still dropped by a little more than 300 points as we passed the 90-minute mark of trading.
Stocks then attempted a comeback, and did so with notable success, as the Dow's loss eased to fewer than 100 points as the noon hour approached in New York, even as IBM continued to trend sharply lower, with a loss of almost $10 a share. The comeback then continued as the afternoon began, with the Dow erasing its more than 300-point loss and then turning positive. Then, after a couple of hours of back and forth trading around the neutral line, the averages, again turned lower, but without the fury to the morning's descent. Regarding interest rates, meantime, yields on the 10-year Treasury note edged up slightly to 3.17%.
Stocks would then stage another recovery as the final hour began, but that would be short-lived, as the averages would all retreat once more, albeit modestly. At the close, the Dow would be down 92 points, while the two other large-cap composites--the S&P 500 Index and the NASDAQ--would just miss the breakeven line. Modest losses, meantime, would be seen in the small-cap arena, while most of the market sectors would end lower, led down by the energy and basic materials groups. Also, losing stocks would almost double winners on the Big Board. So, it was a down day, overall, but not nearly as severely as appeared earlier in the day.
Looking out at the penultimate session of the week, we see that shares were lower in Asia overnight, while in Europe, the major bourses are trending slightly higher. Also, Treasury yields are up modestly and the U.S. equity futures are showing little early movement. Ahead today is a report on the leading indicators. That data will follow yesterday's release on the minutes of the last FOMC meeting, where the Federal Reserve suggested that future interest rate increases are likely. Our sense is that the next rate hike will come at the December Fed meeting, with the bank likely to pass at its next get together in early November.
– Harvey S. Katz, CFA
