After The Close
Amidst another day of roughly even market breadth, the major U.S. indexes spent most of Thursday’s session in negative territory. Each of the composites set all-time records yesterday, so many investors were happy to collect profits. The Dow Jones Industrial Average and broad-based S&P 500 groupings managed to climb above their respective breakeven lines in the final hour, with the former remaining comfortably above the just-breached 23,000-point threshold throughout the day. The tech-laden NASDAQ 100, hindered by selling of Apple (AAPL – Free Apple Stock Report) stock, failed to mount a similar recovery, but still closing with less-than-half its midday nadir.
A spate of soft quarterly releases gave pause to what has thus far been another successful run of earnings by Corporate America. Dow component American Express (AXP – Free American Express Stock Report) failed to garner much enthusiasm from the market today, despite posting a modest bottom-line beat when it published its performance data after Wednesday’s closing bell. Rather, investors were apparently more concerned with the announcement that its long-tenured CEO would be stepping down from his post. The blue chip group rose into positive territory after Travelers Companies (TVX – Free Travelers Stock Report) delivered strong interim results.
Elsewhere, Unilever (UL) held the consumer staples down after its sales disappointed in the recent period. In addition to Apple’s softness, the tech sector suffered from a poor report from e-commerce pioneer eBay(EBAY). In fact, each of the so-called FANG stocks – Facebook (FB), Amazon.com (AMZN), Netflix(NFLX), and Google-parent Alphabet (GOOG) -- shed about 1% in market value. To be sure, some rotational trading was also at play again today. The basic materials and utilities sectors, two of yesterday’s biggest laggards, posted encouraging aggregate gains during the session.
Meantime, profit taking was a headwind in the oil trade. U.S. crude returned 1.4% of its per-barrel value today as investors took advantage of elevated valuations. There were some positives on the day, though, including an 11% production decline by U.S. refineries and an increased likelihood that OPEC would extend supply cuts through 2018. On the other side of the coin, disrupted supply from Iraqi Kurdistan added some uncertainty to the market. Excluding the aforementioned tech sector, energy stocks accordingly posted the biggest decline during Thursday’s session.
Looking to tomorrow, the bulls will likely aim to regain definitive control of the market should earnings trend positive. But with valuations still near record levels, we would not be surprised if the final day of the trading week exhibited a similarly timid tone.
– Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 PM EDT
The major U.S. averages, all fresh off of record closings yesterday, started today’s session in the red and have held onto a good deal of the losses as we move toward the midday hour on the East Coast. The biggest reason for the selling is weakness in the technology sector, which is being hurt by some declines in the big tech names. We also sense that there is some profit taking in play after the aforementioned all-time high finishes on Wall Street.
In the technology group, stocks are under pressure, led lower by shares of industry behemoth Apple (AAPL – Free Apple Stock Report). A report from a Taiwanese newspaper, citing unnamed sources, that Apple may be cutting orders for iPhone 8 parts by as much as half in the final three months of 2017 suggests iPhone 8 sales are less than Apple had hoped for following its release earlier this year. Too, there was a separate report that said the new Apple Watch's independent cellular connection feature was abruptly cut off in China, without explanation, after a brief availability with one telecom company. Likewise, weakness in shares of online auctioning giant eBay (EBAY) after the company posted disappointing quarterly results, is pressuring the sector.
The technology group is not the only sector witnessing some profit taking this morning. The consumer staples and discretionary stocks are in the red, with some disappointing quarterly results the biggest culprit. In the consumer staples area, a weak quarterly report from industry giant Unilever (UL) is bringing the sector down. Specifically, Unilever reported lower-than-expected third-quarter sales, losing market share to smaller competitors. Conversely, we are seeing some modest rotation into some of the more defensive sectors, with the healthcare, telecom, and utilities groups in favor this morning.
Meantime, it was a mostly quiet day on the business beat, with no major reports released this morning. Investors, though, should note that the advance figure for seasonally adjusted initial jobless claims was 222,000, a decrease of 22,000 from the previous week's revised level. This was the lowest level for initial claims since March 31, 1973 when it also was 222,000. The previous week's level was revised up by 1,000 from 243,000 to 244,000.
In general, the market is weak today, with most of the 10 major equity groups in the red and declining issues leading advancers by a notable margin on both the Big Board and the NASDAQ, to the tune of more than two to one on the latter exchange. It also should be noted that the broader small-cap sector is leading the move lower, with the Russell 2000 off more than a half-percentage point in intra-day trading. This, along with the advance/decline ratio, would suggest that the bears will be tough to beat today, as we inch closer to the second half of the trading session. Clearly, investors are using some disappointing news in the tech and consumer spaces as a reason to take profits in a market that is overbought at this juncture. Stay tuned.
— William G. Ferguson
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Before The Bell
Following a tentative intraday move above 23,000 on Tuesday, before just missing by a hair that level at the close, the Dow Jones Industrial Average showed no such hesitation yesterday. Thus, the 30-stock composite, on the back of a strong quarterly top- and bottom-line results from old-line technology behemoth IBM (IBM - Free IBM Stock Report) ascended to that psychologically critical plateau with plenty of room to spare. In fact, within minutes of the open, the Dow had stormed ahead by almost 125 points. As for IBM, that heretofore ailing tech giant saw its shares jump by better than $13 in the first hour of trading. It would retain that gain.
However, the Dow's surge was no tide that lifted all boats, for while this narrowly configured index rose strongly, the S&P 500 Index barely budged from the neutral line, while the NASDAQ fell some 10 points into the red as the first hour passed. However, a second round of buying soon ensued, and the Dow raced quickly ahead to a new session high at the time, with a gain north of 140 points. The other indexes moved into plus territory, as well, as optimism about earnings continued to run rampant. As we reached the noon hour in New York, the Dow, in particular, was doing well, while the NASDAQ again had dipped into the red.
Of course, it is not just about earnings, as the economy also is playing a role. On point, an hour before the start of the trading day, the Commerce Department reported that housing starts and building permits had both eased back modestly in September, with the former declining by 4.7% and the latter, a more forward-looking indicator, edging down by 4.5% on a consecutive-month basis. The respective declines likely evolved, in part, from construction delays resulting from the succession of recent hurricanes. Nevertheless, housing levels still are quite strong, and should increase for a time, as rebuilding efforts get under way and progress.
Meanwhile, in addition to the already reported housing starts number and today's pending report on September sales of existing homes, some traders were awaiting the 2:00 PM (EDT) release of the Federal Reserve's Beige Book economic compilation yesterday afternoon. Expectations have been that the central bank would convey a relatively upbeat picture of U.S. economic activity. And, in fact, that is what transpired, leading many to conclude that the Fed would increase interest rates before yearend. The consensus is that such a rate hike will be effected at the December FOMC meeting.
The equity market's latest push higher, meantime, did not waver materially as the afternoon got under way and we moved toward the 2:00 release of the aforementioned Beige Book. The market, in fact, strengthened moderately from the noon hour, with the Dow climbing to a gain just north of 160 points as the Beige Book was released, while IBM made its best showing since 2009. Still, save for IBM, most of the Dow-30 moved little in either direction. The market then steadied after the 2:00 PM release, apparently because the news was reassuring, with all 12 Federal Reserve Districts reporting increased economic activity
The stock market then added incrementally to its gains as we moved into the homestretch, with the Dow, in particular, showing its muscle, as its afternoon increase surpassed 170 points for a spell late in the day. More modest strength was shown by the other averages, as advancing stocks pulled nicely ahead of declining issues as the session wound down. Not all the news was uplifting, however, as the energy, basic materials, and telecom groups all struggled. In all, gaining stocks maintained their modest lead as the day concluded, as the Dow retained its strength, closing up by 160 points.
Now, a new day gets going, and for some clues as to whether the recent formidable advance on Wall Street will continue, we check in with the markets in Asia, where the principal indexes were trading in mixed fashion in overnight dealings. In Europe, meantime, the major bourses are heading lower on concerns about Catalonia. Elsewhere, oil is off more than 1%; Treasury yields, up to 2.34% on the 10-year note late yesterday are easing some in early action. As to our equity market, on a day that will feature a slew of additional profit reports and data on sales of existing homes, the early read is notably lower on expectations of some upcoming profit taking.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
