After The Close
The major U.S. indexes began Wednesday’s session up sharply, setting all-time intraday highs soon after the opening bell before paring the gains around the midday hour. The recent rally has been emboldened by a strong earnings season and a favorable economic outlook, as a majority of reporting companies continue to deliver in-line or better-than-expected quarterly performance data. The basic materials and energy sectors were the most buoyant today, while weakness by utilities, industrials, and the technology sectors offset the gains. We suspect profit takers were out in force today as many equities remain near their historic high price levels.
As for tax reform, a prospect that propelled equities to all-time highs after last year’s election, investors will need to wait another day for a major development. Top House Republicans delayed the release of their proposed legislation to tomorrow, citing the need for more discussions and work by the ways and means committee. Since the suspension of its healthcare reform efforts, the GOP has indicated it plans to aggressively pursue a reconfiguration of the corporate and personal tax codes. While it’s unlikely a bill gets passed before the new year begins, the market is likely pricing in the expectation of meaningful progress, setting the stage for a potential sell off in late December if lawmakers fail to make headway on the issue.
Elsewhere, traders awaited transparency from the Federal Reserve as it pertains to its near-term interest-rate strategy. While a hike was never expected to be announced this afternoon, the central bank’s leader’s statements, though short on specific declarations, did further the likelihood of a tightening of monetary policy at the next summit. Currently, the expectation is for a 0.25 basis-point rise in December. Today’s better-than-expected private sector jobs report may be a harbinger for things to come on Friday, when the Department of Labor unveils its monthly employment figures.
U.S. crude oil, meanwhile, turned negative as the day progressed. The turnaround was due mostly to a modestly disappointing report on domestic inventory levels, which only decreased by 2.4 million barrels. The recent upturn in the commodity market has been supported by persistent optimism from OPEC as it relates to the potential extension of its drilling accord through 2018. In October, it was revealed that compliance to the reduced production was at 92% of the cartel’s members. With an undersupply and elevated demand expected next year, the outlook here is cautiously bright.
As the closing bell sounded, each of the large-cap indexes pared its early gains considerably. The Fed’s meeting did help to firm up gains for the Dow and S&P 500, which still remained below their all-time highs. The NASDAQ 100, one of the strongest performing composites of the ongoing earnings season, spent most of the day in negative territory as investors likely took advantage of elevated valuations. Market breadth, which at one point earlier in the day showed a 2.5-to-1.0 ratio of gaining to losing shares, was roughly even at the end of the day.
– Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Mid-Day Update - 12:00 PM EDT
The major stock averages have started the month of November mostly on an up note. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is up 47 points and the S&P 500 is showing a five-point gain. But the NASDAQ is off a few points. Market breadth is mixed, with advancing issues ahead of decliners on the Big Board, but more losers than winners on the NASDAQ.
Many of the market’s catalysts have carried over into the new month. Those include a synchronized up cycle for the world’s major economies and good corporate earnings growth. In fact, the stronger business conditions around the globe have even translated into higher sales for consumer staples companies, a group that had been struggling for years to put up top-line growth. The consumer staples sector is one the leaders this session.
Wall Street is also figuring on a continuation of moderate monetary policy after an expected change of leadership at the Federal Reserve in 2018. President Trump may announce his choice for Fed Chairman before he leaves for a trip overseas later this week. The thinking is that Board of Reserve governor Jerome Powell will get the nod. That tentative selection is not being seen by the bulls as rocking the boat.
Note: The Fed met yesterday and is meeting today to discuss policy, but no changes are expected until next month.
One item on investors’ wish list that may lag is tax reform. House Republicans last night pushed back until Thursday plans to announce proposals originally meant to be unveiled today. A few sticking points apparently remain in what is a very complicated undertaking.
Meanwhile, the economic data points continue to come in with a generally favorable bias. A reading on the Institute of Supply Management’s nonmanufacturing (service sector) index for October came in at a relatively strong 58.7 this morning. (Figures above 50.0 point to expansion). In addition, construction spending for September rose moderately, according to the Commerce Department. Little change had been expected.
In other markets, oil prices are pushing higher as evidence mounts that global inventories are on the downswing. There also seems to be optimism that OPEC and other global producers will maintain production cuts when they meet to discuss strategy in Vienna at the end of this month.
Heading into the afternoon session, the bulls remain in charge.
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
It may have been a scary night for revelers on Halloween, but it was a relatively quiet and unassuming session on Wall Street earlier in the day. On point, stocks, off sharply on Monday on worries about possible delays in implementing the full corporate tax reform package, regained their footing as the latest trading session moved along. But yesterday, the focus was more on earnings than on taxes. And there continued to be a flood of profit issuances. And, for a change, it was the consumer noncyclical group that held the bullish reins, following upbeat profit reports and sales indications from Mondelez (MDLZ) and Kellogg (K).
This upturn in the group represented something of a turnaround from Monday's session, when the food processors were among the major casualties. Elsewhere, the profit picture was not as bright, with the high-profile sports apparel maker Under Armour (UAA), for example, already under pressure for months, seeing its shares tumble to a new low below $14 a share, on a weak outlook for the next quarter. Overall, though, the bulls were holding an edge in the early going, and as we completed the first 90 minutes of the trading day, the Dow Jones Industrial Average, an 85-poiunt loser to start the week, was ahead by some 20 points.
Gains also were seen in the NASDAQ, as well as in the small- and mid-cap categories. Meanwhile, in addition to profits and a small dose of politics to grab the attention of investors, there also was the economy, where traders were given treats rather than tricks as the Conference Board, a private research group, reported another gain--to its highest level in 17 years--in consumer confidence. In all, the Index rose from September's 120.6 to 125.9 last month. Later this morning, the ISM will report on manufacturing activity for October. Another reasonably strong survey result is the forecast.
Then, there is the Federal Reserve, which, yesterday, began its two-day FOMC meeting, which will conclude at 2:00 PM (EDT) this afternoon. No change in interest rates is expected. However, we would look for signs that the bank could opt to increase rates next month. In other news, the focus also will be on employment, as the government will release the latest figures on non-farm payrolls this Friday. Expectations are that the nation will have added some 300,000 jobs last month. In September, by comparison, the U.S. Labor Department reported that 33,000 positions were lost, in the aggregate.
So, stocks were again rallying. Indeed, after this generally higher start, the market firmed a little further as the morning concluded, with gaining stocks increasing their earlier modest lead on declining issues, while most of the 10 major sectors continued to trade higher. Things did not change much as the afternoon got rolling, although there was a gradual pickup in bullishness as the session moved into the final 90 minutes, as the Dow edged up toward a 40-point advance. Strength was noted across the board at that time, as the day took on a rather bullish bias.
Overall, this has been a strong earnings reporting season, with some high-profile names--mostly on the tech side--leading the way. However, there have been some celebrated misses, and the stocks of these companies have been treated rather harshly, as we saw yesterday with the aforementioned Under Armour. The market then firmed up still more as the afternoon moved into its latter stages, before settling back near the close to end modestly higher with the Dow ahead 29 points, the S&P 500 better by two points, and the NASDAQ, which led the way, in the plus column by 29 points.
Now, a new day begins, and one that will see the Fed make its expected rate announcement in a few hours from now, the markets in Asia were trading sharply higher in overnight action, while in Europe, the bourses are strongly higher, as well, at this time. Closer to home, the U.S. futures markets are showing early gains of some note, ahead of a big news day. In all, today should be about the Fed, the economy, and earnings as we head toward this Friday's key release on job growth.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
