After The Close
Though lingering concern about tax reform led to a mostly negative day for the large-cap indexes, market breadth favored the bulls on Friday. The Russell 2000 added roughly 7 points during the session, while advancing shares outnumbered declining issues by a 1.8to-1.0 margin. Strength was found mostly in the cyclical consumer goods, basic materials, and energy sectors, which helped to offset selling in the utility and noncyclical sectors. The broader market was also supported by a solid October housing starts release, as well as a strengthening building permit environment.
Looking closer at the indexes, we see the Dow was negatively affected by Wal-Mart Stores’ (WMT – Free Wal-Mart Stock Report) softness. The retailer led the composite group during yesterday’s rally, but saw share prices return some value as investors took advantage of elevated stock levels. That sector has experienced some mixed results this earnings season, but optimism that the industry is in for a lucrative Black Friday and winter holiday season is high. Meanwhile, the S&P 500 struggled to get anything going throughout the day, wrapping up the week down 2 points, while the tech-laden NASDAQ finished the week up 30 points.
The weakness experienced by large-cap equities can also be attributed to an uncertain outlook for tax reform. The House of Representatives passed its version of a bill this week, but the measure will still need to receive approval from the Senate. Several of the proposals more-divisive features could derail Republicans’ efforts to implement the key economic policy by the year end. Accordingly, Treasury Secretary Mnuchin echoed this projected timeline today, stating that President Trump will have a copy on his desk by Christmas.
Elsewhere, domestic oil wrapped the week on a high note. Still, though U.S. crude rose to $56.55 (2.6%) a barrel on Friday, the commodity lost value over the five-day period. Resurgent concerns about U.S. inventory levels and a moderated outlook for 2018 demand growth have contributed to the recent pullback in price. With OPEC likely on track to extending its drilling accord through 2018, there remain plenty of silver linings within this market. On that front, however, there is some simmering doubt that Russia is in full support of the extended cut.
The final hour saw the Dow, S&P 500, and NASDAQ remain well below their respective breakeven lines. While we believe there is some cautious optimism surrounding the prospect of tax reform, which has driven the market to record levels since last November, the failure to pass a measure could well result in a modest selloff before 2018 begins. Stay tuned.
— Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Mid-Day Update - 12:05 PM EST
The stock market moved lower this morning, and has been unable to reverse course meaningfully, so far. At just about noon in New York, the Dow Jones Industrial Average is down roughly 85 points; the broader S&P 500 Index is off four points; and the technology heavy NASDAQ is lower by three points, as well. Market breadth is somewhat favorable, as advancing issues are just ahead of decliners on the NYSE. From a sector perspective, the energy and consumer cyclical names are advancing nicely, while the healthcare, technology, and utility issues are declining.
Meanwhile, there were a couple of economic reports released earlier today. The housing market, which plays a key role in the broader economy, remains in good shape. Specifically, housing starts moved up to 1.29 million units, annualized, during the month of October, surpassing analyst expectations. In addition, building permits, which serve as a forward-looking indicator, strengthened during the month.
Elsewhere, in the corporate arena, a number of retailers posted their numbers over the past 24 hours. Specifically, shares of The Gap (GPS), Foot Locker (FL), and Abercrombie & Fitch (ANF) are moving higher in response to better-than-anticipated reports. In contrast, shares of Williams-Sonoma (WSM) are off sharply, as investors did not seem too pleased with that company’s report. The retailer also announced that it will acquire a small outfit in an effort to provide a sophisticated digital retail platform.
Technically, the stock market has been taking a breather lately. Traders are likely concentrating on the Administration’s tax reform efforts, as they gear up for the holidays and the end of the year.
— 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
A pair of strong performances by two components of the Dow Jones Industrial Average, namely Wal-Mart Stores (WMT - Free Wal-Mart Stock Report) and Cisco Systems (CSCO - Free Cisco Stock Report) helped power the stock market to a big wire-to-wire win yesterday. On point, after the equity market had been under some generally modest pressure to start the week, the solid showings by these two Dow stalwarts drove stocks higher from the outset. In fact, within minutes after the open, the Dow was already ahead by more than 100 points and it took off from there, climbing by better than 200 points as we reached the midway point of the session.
As to these two Dow components, computer networking giant Cisco Systems saw its shares surge to a 16-year high, with the issue jumping by better than 6% midway through the day's session, as the company reported revenues and profits that beat consensus expectations. At the same time, Wal-Mart Stores beat on revenues and earnings, as well. The retail giant also increased its full-year forecast, sending the stock to an all-time high. As to this issue, the day's gain was dramatic, with the stock soaring by some 10%. In all, eight of the 10 leading sectors were ahead for much of the day, led by technology.
In addition to earnings, there is taxes. And yesterday, the House of Representatives passed the tax reform package its leaders had drawn up. The party-line vote was 227-205. The Senate is next up to try and secure passage for its own bill, which differs from the House version in a number of ways. Passage in the senior chamber is believed to be more difficult. Then, assuming the Senate has an affirmative vote, the two houses will then try to reach an accord to present to the President for his signature. The plan is for such a bill to reach the White House by Christmas.
The market's comeback yesterday was most impressive in a year that has been notable for Wall Street's resilience. As to the tax bill, if it is eventually passed, it would reduce the corporate tax rate from 35% to 20%. Reducing the corporate rate is the centerpiece of this effort. Not surprisingly, then, given the several-day downturn in the market, the strong earnings from these Dow heavyweights, and the early optimism about taxes, the market's rise continued throughout the day, with gaining stocks holding a three-to-one lead on declining issues into the late afternoon.
The good news then continued into the close, with the averages all closing fairly near their session highs. To wit, the Dow added 187 points; the S&P 500 was better by 21 points; and the NASDAQ surged to an all-time best close, with an advance of 87 points. In all, the NASDAQ, buoyed by technology, jumped 1.30%, besting the other two large-cap indexes by about half a percentage point each. Gains of 1.01% and 1.56%, respectively, were posted by the S&P Mid-Cap 400 and the small-cap Russell 2000. There clearly was no place to hide for the bears.
Looking out on a new day, we see that Wall Street's latest comeback is having little effect in Asia, as the leading indexes there closed mixed on the day. Trading in Europe, meantime, is evidencing a downward tone. Also, interest rates, up yesterday on better economic news, with industrial production surging by 0.9% in October, are now heading higher once more so far this morning. Finally, U.S. equity futures are showing early losses in both the Dow and the S&P 500.
— Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
