After The Close
The market started the day off lower. It looked ready to continue yesterday’s decline, following disappointing earnings results from a few retailers. However, stocks bounced back after the first hour of trading, largely on an improved trade outlook . Indeed, a report stated that the U.S. and China are working harder to come to a truce at the G20 meeting at the end of this month. Also, a report detailed that U.S. trade representative Robert Lighthizer told executives that further tariffs on Chinese goods may be on hold. The Dow Jones Industrial Average rose steadily on these reports, climbing by as many as 275 points by mid-afternoon. The S&P 500 and NASDAQ also followed suit, with the latter outperforming due to the strong performance of technology stocks. All told, the Dow rose around 0.8%, 209 points, on the day.
Market breadth was narrow, however, as advancers and decliners were largely in balance. Technology and energy stocks outperformed, while interest-rate sensitive REITs and utilities were among the weakest performers. Also helping the comeback was the fact that Atlanta Fed President said that interest rates are “not too far” from neutral. This suggests some in the Fed may advocate slowing the pace of interest rate hikes in 2019.
Also, a slew of good economic data was announced. Retail sales rebounded in October, as auto and building materials purchases saw larger-than-expected increases. These were likely helped by rebuilding efforts in areas affected by Hurricane Florence. In addition, the Empire State Manufacturing index came in stronger than forecast, despite higher input costs. Meantime, the EIA natural gas report showed a notable build in inventories. The commodity hit a nine-year high yesterday, but the news caused the prices to tumble.
Looking ahead, tomorrow is a bit lighter on economic news, as just data on industrial production and capacity utilization for October will be released. In addition, a few companies will report quarterly results, including Viacom (VIAB) before the bell.
— 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
The stock market, which has suffered mightily since last week's FOMC meeting, falling moderately to end that five-day span, before plunging anew on Monday, tried to steady itself on Tuesday. However, that attempt failed late in the day. Still, the bulls were out there trying once more yesterday morning. In this latest rally attempt, beleaguered traders were helped by a benign Consumer Price Index report, which showed that inflation at the retail level increased by 0.3% last month and 2.5% for the past 12 months. That report also contained data showing that the core rate of CPI growth (i.e., less food and energy) gained just 0.2%.
Armed with this fairly tame issuance, the Dow Jones Industrial Average roared ahead to an early gain of 215 points. But that relief rally proved all too brief, and within fewer than 90 minutes that composite was again in the red, if grudgingly at first. It was a like story for the tech-laden NASDAQ, which again was under pressure from another large drop in the recently battered shares of Apple (AAPL –Free Apple Stock Report). That issue, under pressure from downgrades on demand concerns, had traded as high as $233 in early October. It now has fallen some $50 a share, putting it into bear market territory.
After this hesitant move downward by the market, the selling picked up steam as we headed into and through the lunch hour, so that as we moved inside the final two trading hours, the Dow's decline briefly surpassed 300 points, bringing that composite back below 25,000 for a time. Once that happened the buyers returned, paring the day's deficit in half. Still, the latest decline has fallen short of the more massive drop late last month. In addition to Apple shares, the market was hit by selling in the banking issues, a group that had been in the vanguard of the year's earlier advance.
The banking group's selloff came after a leading Democrat in the House said that the Administration's efforts to curb banking regulations would come to an end after the change next year as control of the House of Representatives shifts. Initially after the elections last Tuesday, the market had rallied on the appeal of divided government. Since then, sentiment has evolved and stocks have fallen. Indications by the Federal Reserve that it will likely raise interest rates at next month's FOMC meeting also has contributed to the soured mood on Wall Street.
Further, another Democrat suggested that the recently updated trade deal between the United States, Canada, and Mexico would need to be revised before it can pass through Congress. The Representative said that there needed to be more enforcement before the changes are adopted. Meanwhile, this latest downdraft came in spite of the fact that oil prices, down for 12 straight sessions, were rallying somewhat. Also, Treasury note yields were falling once again. Thus, in spite of the midday swoon, the mood was not sufficiently sour to keep the sellers on the offensive throughout the entire afternoon.
In fact, aggressive buying would evolve during the final hour, further paring the losses in the Dow and the other indexes for a time, before some aggressive last-minute selling choked off the latest rally attempt. In all, as the final bell sounded, the Dow was again sharply lower, surrendering 206 points, with Apple shares tumbling by another $5.43, or 2.8%. Also of note, the S&P 500 Index shed 21 points and the NASDAQ declined 64 points. The smaller-cap indexes also gave ground. In all, the losses in the Dow and the S&P 500 served to nearly wipe out their cumulative gains for the year.
Looking out at a new day, and following the third Dow loss in three days this week, we see that stocks were mostly higher in Asia overnight, while in Europe, the leading bourses generally are trading lower at this hour. In other key markets, oil prices, which broke a 12-day losing streak yesterday, are now flat amid supply glut concerns, while Treasury note yields, which ended the session yesterday at 3.12%, are now at 3.11%. Finally, the U.S. equity futures are pointing to a higher opening when trading resumes later this morning.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
