After The Close
The stock market put in a mixed showing today, as traders reacted to the latest batch of corporate profit reports. At the close of the session, the Dow Jones Industrial Average was ahead 71 points; the broader S&P 500 Index was up three points; but the NASDAQ was lower by seven points. Meanwhile, market breadth also showed a divided session, as advancing issues were roughly even with decliners on the NYSE. From a sector perspective, the consumer stocks led the market higher today, while the healthcare issues encountered considerable selling.
There were a few economic news items released this morning. Specifically, initial jobless claims came in at 233,000 for the week of October 21st, which was largely in line with expectations. Elsewhere, pending home sales remained unchanged during the month of September, while most analysts had anticipated a slight increase. Tomorrow, we will get a look at the advance estimate for third-quarter GDP (gross domestic product). Further, the University of Michigan will finalize its consumer sentiment figure for the month of October.
Elsewhere, the third-quarter earnings season is ongoing. Some stocks made dramatic moves today, in response to results. Of note, shares of Celgene (CELG) plunged after the biotechnology company delivered weaker-than-expected results and tempered its view. In contrast, shares of Twitter (TWTR) soared after the social media operator posted better-than-anticipated numbers.
Technically, the stock market continues to make progress. Looking ahead, traders, while optimistic about the corporate outlook, may have some concerns about extended equity valuations. Furthermore, many on Wall Street will be watching the political situation in Washington, where tax reform is the lead story.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EDT
The U.S. equity market, fresh off of yesterday’s profit taking, is seeing the buyers return today, with the major U.S. equity averages rebounding notably this morning, but now trading off of those earlier highs. The move higher is being led by the large and small-cap sectors, with the Dow Jones Industrials up close to 100 points in intra-day trading. A similar surge in the broader small-cap Russell 2000 is also encouraging for the bulls in their attempt to retrace yesterday’s setback and resume their quest of hitting new all-time highs.
The main catalyst, in addition to hopes that some tax reforms may be coming in the near future, is third-quarter earnings season. With more than 70% of the S&P 500 companies having reported, the results have been rather encouraging and has provided a good deal of support to a market that is at or near record highs. The earnings news this morning did not include many big names, but that will change later today, with technology heavyweights Alphabet (GOOG), Amazon (AMZN), Microsoft (MSFT - Free Microsoft Stock Report), and Intel (INTC - Free Intel Stock Report) all scheduled to report their latest quarterly results after today’s closing bell. As far as this morning, shares of Celgene (CELG) are trading sharply lower after the drug company reported lower-than-expected sales for its flagship multiple myeloma drug Revlimid and its psoriasis drug Otezla.
The Celgene report is weighing on the healthcare sector, which is down in an up tape. The healthcare group is the one notable laggard among the 10 major equity groups as we inch closer to the noon hour on the East Coast. Conversely, we are seeing some buying in the industrial, technology, and basic materials areas. In the technology space, a strong quarterly report from social media company Twitter (TWTR) is helping matters ahead of this afternoon’s big earnings news. That said, the move higher is not as forceful as the major equity indexes would make one believe, as the spread between advancing and declining issues is not all that formidable on either the Big Board or the NASDAQ.
In addition to the earnings news, the Federal Reserve will return to the spotlight in the coming days, with the central bank’s two-day monetary policy meeting commencing next Tuesday. Part of the selloff yesterday was on growing sentiment that the Federal Reserve may become a bit more hawkish in 2018. That may well depend on whom President Trump picks to lead the Federal Reserve. An announcement is expected within days. Rumors are that current Fed Chair Janet Yellen and former Fed Governor Kevin Warsh are out of the race for the central bank's top job, with attention likely to shifting to Fed Governor Jerome Powell and Stanford University economist John Taylor, who are now rumored to be the frontrunners for the position. The appointment of the next Fed Chairperson will likely have an impact of the market’s performance. If the selection is perceived to be more hawkish on monetary policy than current Fed Chair Yellen, it may prompt some selling in a market that clearly has been helped by the central bank’s historic run of accommodative monetary policies.
Speaking of monetary policy, the European Central Bank announced its latest monetary policy decision earlier today and it was a mixed one. Specifically, the euro zone’s central bank has halved the pace of its bond-buying program, but at the same time it has extended it for another nine months. The European bourses, most notably France’s CAC-40 and Germany’s DAX, jumped sharply on the news.
– 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
Overall, though, the numbers are still coming in strong, with Tuesday's strong performance by the Dow Jones Industrial Average given a big boost by the stellar profit showing from earth-moving giant Caterpillar (CAT - Free Caterpillar Stock Report). Also helping equities is the hope of a big tax reform package coming out of Washington. However, that is easier said than done in a setting in which interparty squabbling is a way of life these days. For now, though, save for some well-spaced reversals, optimism remains the watch word on Wall Street, as the all-time records have continued to fall.
One other factor at play yesterday was the economy, where data issued an hour before the market opened showed a 2.2% increase in orders for durable goods last month. That was the third rise in the last four months in this category. Then, 30 minutes into the trading day, the government reported a very strong jump in new home sales in September. On point, sales rose 18.9% last month, to 667,000 dwellings, on an annualized basis, from a revised 561,000 homes in August. A flattish showing, at best, had been the consensus forecast.
However, this good news did not carry favor on Wall Street. In fact, after this unimposing start to the session, the market headed notably lower as the morning progressed, with the Dow falling through the 100-point decline mark as we passed the 90-minute mark of the trading day. Some nervousness about tax reform likely contributed to the selloff, but it was mainly an earnings-driven event, with Chipotle Mexican Grill (CMG) joining AMD on the sell list on weaker store traffic. The S&P 500 Index and the NASDAQ, along with the smaller composites (especially the S&P Mid-Cap 400) also tumbled.
The losses then increased for a time as the afternoon began, with the Dow's deficit soaring to a session-worst deficit of 190 points, while the NASDAQ tumbled about 80 points. However, stocks started to come back as the last half of the session progressed, with the buying paring the Dow's loss to fewer than 100 points, for a time. Meantime, in addition to some earnings misses, the Street was rattled by climbing bond yields, with the 10-year Treasury note's return rising to 2.44% late in the day. That was getting near the high for the past year. At its 12-month nadir, the note's yield had fallen to 1.77%
The market's retreat moderated still further as we moved inside the final hour of trading, with the Dow again easing back to a loss of fewer than 100 points. Apparently, the lure of tax reform and the overall sense that, notwithstanding some weaker profit reports in recent days, the tenor of earnings season remains decidedly upbeat. We would expect the next week, or two, to further affirm this positive tone. Still, even with this afternoon comeback, which flattened out as we moved inside the final few minutes of trading, the market ended the session moderately weaker.
All told, the Dow shed 112 points, with Boeing (BA - Free Boeing Stock Report) a notable casualty; the S&P 500 was off by 12 points; and the NASDAQ gave back 35 points. Losses of a modest note also hit the S&P Mid-Cap 400 and the small-cap Russell 2000. Breaking things down further, we see that all 10 equity groups fell, with telecom performing the worst following a weak report from communications giant AT&T (T). Also losing stocks retained a better-than-three-to-one advantage on gaining issues on the Big Board, as Wall Street labored through one of the weaker sessions this year.
Looking ahead to a new day, we see that shares in Asia were treading water in overnight action, while in Europe, the major bourses are now tracking a bit higher. In another key market, Treasury yields, up sharply yesterday, are now back down somewhat in early trading this morning. Finally, our equity futures are following up yesterday's weakness with some nominal strength.
