After The Close
The stock market started today modestly in the red, and then fell further as trade-war concerns came to the forefront. This concern followed a report that some officials from China doubted that a trade deal would be completed. The markets started to trend lower, as noted, and the Dow Jones Industrial Average was down by as many as 258 points, early in the session. The other indices followed suit. The market reached an oversold condition, and then bounced a bit, but only recovered a portion of the day’s losses. The composites then traded sideways throughout the session, before moving up a little towards the end of the day. Still, it ended well into the red. All told, the Dow closed lower by 140 points, while the S&P 500 was down nine points, and the NASDAQ shed 12 points.
Moreover, market breadth was quite negative, as decliners outpaced advancers by a 1.7-to-1.0 ratio. Utility stocks were among the best performers on the day, while materials equities were among the weakest.
In commodity news, oil prices were lower as sentiment fell on the global trade worries. Meantime, U.S. Treasury bond yields fell quite a bit, as a rush to the safe-haven asset occurred. These were down across the board, and most issues had yields fall more than ten basis points, suggesting traders moved a lot of money into the asset. The VIX Volatility Index was higher today, as demand for options protection rose a bit.
Looking ahead, tomorrow will have a fair number of economic data released, including the ISM manufacturing index and the unemployment rate for October.
Too, earnings season will continue with several large companies slated to report after today’s closing bell and before the market opens tomorrow. These include Dow-components Chevron (CVX – Free Chevron Stock Report) and Exxon Mobil (XOM – Free Exxon Stock Report). All told, we think that tomorrow's trading will be guided by earnings, the outlook for U.S. and China trade negotiations, and the employment report.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Wall Street opened slightly lower yesterday, as third-quarter earnings continued to unfold and investors awaited the 2:00 PM (EDT) monetary decision by the Federal Reserve. Expectations had been for another 25-basis point interest rate reduction. And the Fed would, indeed, do the expected, and cut rates again. The unknown was what the central bank would say upon the release of its monetary statement (more below). As to earnings, there have been some notable hits and misses in recent days, but the overall thrust has been reasonably positive and the stock market has held its ground and in some cases advanced further.
In yesterday's early action, the major casualty among the indexes was the NASDAQ. That composite had been under pressure the day before, as well. Weakness in some technology issues has been a factor in the tech-laden index. The Dow Jones Industrial Average, off at the open, had managed to trim its deficit as the first half hour concluded. As to some of those reporting yesterday, erstwhile Dow component General Electric (GE) saw its stock jump ahead more than 12% in the early going. It seems as though the company's downsizing, in which it is shedding nonindustrial businesses, is paying off in increased cash flow.
In other news as investors awaited the Fed's afternoon announcement, the government reported its first estimate of third-quarter GDP growth. That metric came in at 1.9%; expectations had been for a rise of just 1.6%. However, that tally was the weakest of the three quarters of 2019 thus far, with respective first- and second-quarter GDP increases of 3.1% and 2.0%. The increase in GDP in the period reflected positive contributions from consumer and government spending, and gains in residential fixed investment and exports. Nonresidential fixed investment and inventory change detracted from the period's growth.
As to the report, it was greeted rather positively by traders and after the first hour of trading, the NASDAQ had cut its losses and the Dow was modestly in the green. The small-cap Russell 2000, however, was decidedly lower at that point. The stock market then would drift somewhat lower again into the lunch hour, as skittishness emerged ahead of the Fed announcement. We then would drift aimlessly into the 2PM hour, with the bulls and the bears poised to react one way or the other as the rate decision and the accompanying statement were issued.
The announcement brought few surprises, as interest rates were cut the forecasted 25 basis points, but the bank also suggested that it might well pause at the next meeting rather than lower borrowing costs again so soon. But after staying near the breakeven line for about an hour, the market turned higher as we headed into the homestretch, with the Dow moving out to a 75-point gain by 3:00 (EDT). The strength would increase thereafter and the session would end with the averages at their daily high. All told, it was a modestly reassuring session, as investors seemed in sync with the likelihood of a monetary pause for now.
In all, the Dow would end up by 115 points; the S&P 500 would add 10 points; and the NASDAQ would gain 27 points. However, small losses would be booked by the S&P Mid-Cap 400 and the small-cap Russell 2000. Now, we look ahead to a new day and with the key employment report looming some 24 hours from now, we see stocks were mixed in Asia overnight, while in Europe, the major bourses are thus far showing early losses. Also, oil prices are just about flat and Treasury note yields, off yesterday afternoon, now are down again this morning. Finally, our equity futures suggest a weaker opening when trading resumes this morning on new trade deal concerns.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
