After the Close
The equity markets logged a somewhat lackluster session today. At the end of the day, the Dow Jones Industrial Average was up about 21 points; the broader S&P 500 Index was down just slightly; and the NASDAQ was off nearly 19 points. The general tone was mixed today, as winners and losers were roughly even on the NYSE. Specifically, the financial and basic materials issues managed to press nicely ahead, offsetting pronounced losses in the technology sector.
There were no economic reports issued this morning. The absence of news may have had traders looking to the developments taking place overseas. In addition, some investors may have been speculating about the shifting political situation in the United States, as they attempt to calculate how any new policies might impact the corporate economy. Tomorrow the economic news should pick up quite a bit. Specifically, we will get a look at the latest monthly retail sales figures. A report on import and export prices is also due out. Further, business inventories for the month of September will be released, along with a report on the business conditions in the greater New York area.
Elsewhere, it was a quiet day for corporate profit reports. However, there was some M&A news worth mentioning. Specifically, shares of Mentor Graphics (MENT) rose sharply in response to news that the technology company will likely be acquired by Siemens (SIEGY) for $37.25 per share. On a related note, shares of Harman International (HAR) were also trading higher after that company agreed to be purchased by Samsung Electronics. Increased M&A activity is usually a plus for the stock market, as it suggests that the shares of some companies are still trading at reasonable multiples. Further, by combining forces, corporations should be able to realize various business and cost benefits.
Technically, stocks seem to be doing a bit better, now that the Presidential election has concluded. However, it remains to be seen if traders will remain optimistic in the weeks ahead. - 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 - 11:55 AM EST
It has been a rather directionless day of trading so far on Wall Street to start the new trading week. The large-cap Dow Jones Industrial Average and the broader S&P 500 Index are bouncing around the neutral line, while the NASDAQ, which was the weakest relative performer last week, is in the red again today, weighed down by the continued struggles of the technology stocks. That aside, though, the post-presidential election rally, which gained steam last week, still appears to be very much in play, with the continued surge in the small-cap market. There is a growing sense on Wall Street that President-elect Trump’s agenda will help the fortunes of the nation’s smaller-sized companies.
In general, the market has been helped by a prevailing consensus that Mr. Trump’s pro-business policies, including calls for a drastic reduction in the corporate tax structure and the number of financial regulations, will be a boon for most United States-based companies. Also helping matters were recent soothing remarks by President-elect Trump, which suggest that some of his controversial campaign promises may be toned down a bit when he takes office on January 20th. This has restored some confidence among investors about the person who will lead the world’s biggest economy over the next four years, and is prompting market participants to increase the amount of risk in their stock portfolios. Conversely, investors have turned away from bonds, with the yield on the benchmark 10-year Treasury note, which moves inversely to the price, rising sharply.
The election results, which also included Republicans holding control of the Senate and House of Representatives, also are having a profound effect on the U.S. dollar. Indeed, the greenback surged to an 11-month high this morning. The strength of the dollar can be traced to optimism that the Trump Administration will bolster spending and drive prices higher. This, along with the expectation that the Federal Reserve will raise short-term interest rates next month, is pushing the dollar higher. On the Federal Reserve front, investors should note three District Presidents will give prepared remarks this afternoon, which may have some impact on the direction of trading over the final few hours of today’s session.
As noted in our recent market commentary, what the presidential results have done is prompt some notable sector rotation among the 10 major equity groups. The recent spike in both short- and long-term lending rates is helping the financial sector, which is the biggest gainer among the group. Conversely, the higher-yielding equities (i.e., utilities, telecommunications, and consumer staples) are out of favor, as they become less attractive to income-oriented investors when the yields on fixed-income securities are on the rise. The strength of the dollar is having a negative effect on some of the commodities groups as well, with the energy stocks hurting the most today. And, the technology stocks, which were the worst performers last week, are again under significant selling pressure today.
Looking ahead to the remainder of the session, we would not be surprised if the aforementioned sector rotation continues, as investors still try to get a handle on last week’s election results and digest some commentary on monetary policy. That said, we would not be surprised if the bulls made a move later today, as market breadth, despite this morning’s choppiness, is still in their favor and there is a strong rally going on in the broader small-cap area. At the very least, this should limit the downside risk. 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.
Before the Bell
It was a remarkable five-day stretch of trading last week on Wall Street, with the U.S. Presidential election having the biggest impact on the equity averages. The week started off with a big rally on Monday, with the prevailing thought that Hillary Clinton would win Tuesday’s election, adding to those initial gains on Tuesday. Then when the election night totals came rolling in—and it appeared that Donald Trump would win the election, the futures plummeted with the Dow futures off more than 800 points. However, when President-elect Trump addressed the nation early Wednesday morning, the tide began to change and the futures reversed course. Ultimately, the market opened flat on Wednesday, much to the surprise of market pundits who were predicting a Trump victory would be bad for stocks, and then proceeded to deliver a three-day rally on Wall Street that pushed the Dow Jones Industrial Average to a record high.
The primary catalysts were President-elect Trump’s calming words in his post-election speech and the realization that his pro-business objectives, including the rollback of financial regulations and a significantly lower corporate tax structure, both of which have a good possibility of passing, given that his party controls both the Senate and House of Representatives, would be good for Corporate America. President-elect Trump also dialed down a bit, at least for the moment, his anti-trade agenda. This, along with some supportive earnings news, including a good outlook from Walt Disney Company (DIS - Free Disney Stock) on Friday, emboldened the bulls.
The U.S. equity market ended last week on a major high. The Dow Jones Industrial Average, which rose 5% and ended Friday’s session at an all-time high, produced its best week in nearly five years. Likewise, the broader S&P 500 Index rose 3% and the small-cap dominated Russell 2000 completed its sixth-consecutive winning session. The NASDAQ Composite, though, did not fare as well, as technology stocks struggled and there were patches of weakness in the healthcare sector.
What the election results also did was produce some prominent sector rotation. As noted, there was some selling in the technology group, and the stocks of the managed care providers and the hospitals fell sharply, on worries that the incoming Trump administration will look to repeal the Affordable Care Act. The energy sector was also hurt by the stronger U.S. dollar, which makes commodities less attractive in overseas markets, and the continued drop in oil prices both in New York dealings and on the Continent. Crude prices feel significantly on Friday, as investors also reacted negatively to a weekly build in the active rig count. Conversely, the steel, coal, and building equipment sectors got a big boost from the Trump win, as well as the financials group. The latter was helped by thoughts that the incoming administration is going to drastically reduce the number of regulations that the Obama Administration put in place. Higher yields on fixed-income securities and the likelihood of an interest-rate hike by the Federal Reserve next month also helped the financial sector, particularly the banking stocks. We expect the sector rotation to be a market theme over the coming months, as investors get a better understanding about how the Trump Administration plans to govern.
Looking ahead to the new week, we expect the Presidential election to be on the minds of investors, as the third-quarter earnings season begins to wind down, with the retailers now entering the spotlight with their October-period results. We also will receive a number of major reports on the economy, with data due on retail sales, producer and consumer prices, industrial production, and housing starts. Our sense is that the retail sales report will get the highest scrutiny, as we are now just days away from the start of the all-important holiday shopping season for the retailers. Meantime, overnight we received some mixed economic data from China. Specifically, retail sales rose a weaker-than-expected 10% in October, slowing from September's 10.7% growth; industrial output expanded 6.1% in October from a year earlier, matching September's pace and relatively in line with economist expectations; and fixed-asset investment, a closely watched gauge of construction activity, climbed by 8.3% year on year in the January-October period.
The new trading week will also begin with some merger and acquisition news, which is typically a sign of a healthy equity market. Of note, Germany-based Siemens has agreed to buy Mentor Graphics (MENT), while South Korea-based Samsung plans to add Harman International Industries (HAR) to its growing line of businesses.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are indicating a mixed to mostly positive opening for the U.S. equity market. The Dow and S&P 500 futures are higher, while the NASDAQ futures are modestly lower. 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.
