After The Close
The stock market moved nicely higher earlier this morning, but gradually reversed course and headed into negative territory as the day progressed. At the close of trading, the Dow Jones Industrial Average was down 245 points; the broader S&P 500 Index was off 17 points; and the technology-heavy NASDAQ was lower by 117 points. Market breadth was negative, with losers easily ahead of winners on the NYSE. Most of the market sectors retreated, with pronounced selling in the technology and energy stocks. However, some consumer and utility issues managed to buck the downtrend.
It was a light day for economic news. There was just one notable report released. Specifically, personal incomes rose 0.2% in the month of September, while spending advanced 0.4% during the month. Tomorrow will bring limited economic news, as well. Of note, the latest Consumer Confidence Index reading will be the main item to be released. Meanwhile, traders may be looking toward the end of the week for direction, as the October employment numbers will be released Friday morning.
In the corporate arena, there was some M&A news to report. International Business Machines announced that it would be buying Red Hat in a deal valued at roughly $34 billion. Shares of IBM (IBM – Free IBM Stock Report) traded lower today, while Red Hat (RHAT) surged. Tomorrow, we will hear from many widely-watched names, including Facebook (FB) and Pfizer (PFE – Free Pfizer Stock Report).
Technically, the stock market continues to weaken, as the month of October draws to a close. It seems that traders are looking past the third-quarter earnings season, and instead have become increasingly worried about a global economic slowdown and rising interest rates.
– 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 most recent week of trading on Wall Street was a difficult one for those long equities. Indeed, the volatility in the equity market, which has been commonplace this October, picked up notably over the latest five-day stretch. The CBOE Volatility Index (or VIX), also known as the “fear gauge,” ended last week at 23.16, up 21.5%. The major equity indexes, save for last Thursday’s partial recovery, succumbed to a heavy spate of selling, with the moves to the downside, at times, quite pronounced. For the bearish week, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index posted respective declines of 3.0%, 3.8%, and 3.9%, with the broader S&P 500 falling below the technically significant 2,700 level. The volatility—and selling—was broadbased, with the small-cap Russell 2000 and the S&P Mid-Cap 400 Index also down 3.8% and 4.1%, respectively.
The investment community historically doesn’t react well to uncertainty, and it clearly is getting a lot of it these days. Among the issues unnerving investors right now are higher bond yields, inflation concerns, a stronger dollar, geopolitical worries, fractious trade relations between many of the world’s largest economies, and the upcoming midterm elections stateside. Too, we sense that investors are worried that the era of cheap money (i.e., a very accommodative Federal Reserve with regard to monetary policy over the last decade) is coming to an end, as the central bank appearing wedded to raising interest rates.
Meantime, although the third-quarter earnings season has been another good one for Corporate America, with the majority of S&P 500 companies to report so far eclipsing their earnings expectations, it has not proven to be overly supportive for stocks. In fact, there have been some notable misses, including Amazon.com (AMZN) on Thursday afternoon, Caterpillar (CAT – Free Caterpillar Stock Report), and 3M Company (MMM – Free 3M Stock Report), to name a few. The overall good results have been somewhat offset by concerns about the impact of a stronger U.S. dollar going forward, especially on the multinational companies that do a large amount of business overseas. Too, in 2019, the boost from the recent Tax Cuts and Jobs Act will be lapped and the impact on earnings growth will be far less potent. This week, the heavy earnings news continues, led by reports from six Dow-30 companies, including technology behemoth Apple(AAPL – Free Apple Stock Report) and oil giants Exxon Mobil (XOM – Free Exxon Stock Report) and Chevron (CVX – Free Chevron Stock Report).
The U.S. economy news, save for recent data from the housing sector (which we should note is a big cog in the nation’s economic output), has been rather encouraging. On Friday, the Commerce Department reported that the nation’s gross domestic product expanded 3.5% in the third quarter. While down from the June quarter reading of 4.2%, it was still a very healthy reading. However, the strong economic data of late have not helped stocks much, and it anything it has brought increased sentiment that strong economy will encourage the Federal Reserve to continue tightening the monetary reins. Historically, a more restrictive central bank has not been viewed warmly by equity market participants. This week, the economic schedule is filled with a number of important reports, highlighted by the release of October employment and unemployment figures on Friday. Given the aforementioned concerns about inflation, the jobs data is expected to be highly scrutinized for clues about just how aggressive the Fed might be with regards to tightening the monetary reins over the balance of this year and in 2019. We also will get reports on consumer confidence (tomorrow), manufacturing activity (Thursday), and the international trade gap (Friday).
With less than a half-hour to go before the commencement of new trading stateside, the equity futures are presaging some bargain hunting after last week’s selling , which included respective setbacks of 296, 151, and 47 points for the Dow 30, NASDAQ, and S&P 500 Index on Friday, when the U.S. stock market opens. The buying started overseas today, with most of the main indexes in Asia finishing higher overnight and the major European bourses rallying nicely as trading moves into the second half of the session 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.
