After The Close
Stocks fell on Wednesday, but finished off of their lows, as trade talks with China showed signs of slipping into next year without progress.
The market opened moderately lower on the lack of a catalyst. Truthfully, a lot went right on Wall Street in recent weeks when the major averages were setting record highs. Optimism that a trade deal with China could be reached, solid corporate earnings, lower interest rates, and the feeling that the economy would pick up in 2020 combined to fuel a surge in stocks.
Most of the positives remain in place, but delays in hammering out an accord with China have chipped away at sentiment over the past couple of days. A Senate bill to support the protestors in Hong Kong also seemed to lessen the possibility of a trade agreement falling into place right away.
Stocks continued to turn in a lackluster performance as the morning progressed, particularly with no economic data releases on the calendar. The price action was more of a drifting down, rather than a major selloff, but the tone was clearly defensive.
That allowed less-economically sectors, such as consumer staples and utilities, to outperform. Bond prices also rose, with the yield on the benchmark 10-year Treasury note moving down to 1.74%. The yield on the 10-year T-note nearly reached 2.00% a couple of weeks ago, but has since pulled back.
One positive theme that did gain more traction was the strength of the consumer, as evidenced in the earnings reports of a number of retailers.
A big winner on the session was the stock of discounter Target (TGT), which noted that consumers are still benefiting from low unemployment and rising wages. That suggests a positive tone to this year’s holiday shopping season is likely. Black Friday, a big day for retailers, is a little over a week away.
Meanwhile, stocks took a turn for the worse early in the afternoon, when it appeared that U.S.-China negotiations had reached an impasse and the White House threatened to raise tariffs further.
Then at 2:00 p.m. EST release of the minutes Federal Reserve’s last policy meeting revealed little new information, but seemed to remind investors that the Fed would likely take further action, if need be.
At the close, the Dow Jones Industrial Average was down 113 points; the NASDAQ was off 44 points; and the S&P 500 fell 12 points.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
After a largely undistinguished session on Monday, in which an overbought stock market moved little during the day and through the close, equities moved lower yesterday after an initial buying flurry after the open. The principal catalyst for the backtracking was a series of weaker results at the retail counter. Specifically, shares of Dow Jones Industrial Average component The Home Depot (HD – Free Home Depot Stock Report) slid sharply, losing more than 5% at midday, as weak same-store sales at the retailing behemoth overshadowed better-than-expected earnings. Other retailers, including Kohl's (KSS) tumbled as well.
The slide in retail more than offset good news on the housing front yesterday as the government reported that housing starts had jumped ahead briskly in October. Specifically, the report noted that such activity had increased from September's annualized 1.266 million homes to 1.314 million dwellings in October. Similarly, building permits, a more forward-looking indicator rose to 1.461 million units annualized from September's 1.391 million homes. Results were better than forecast on both fronts and suggested that the drop in mortgage rates recently has been helping this sector.
The solid housing report helped to mollify investors who were stung by the dour retailing results at The Home Depot and Kohl's as well as some others. That sector really took it on the chin. Despite the weakness in retail and the overall setback in the Dow, which was around and, at times, just above 100 points, the S&P 500 Index, a more broadly configured index, remained near breakeven, while the NASDAQ, boosted by gains in big tech, rose modestly through much of the session. Defensive groups also did better, but the basic materials sector saw additional setbacks, with Dow component Dow Inc. (DOW – Free Dow Stock Report) among the laggards.
Meanwhile, the market stayed in a fairly tight range into the final hour, with the Dow continuing to lag because of losses in The Home Depot. As noted, Kohl's was beset by weakness in same-store sales, too, and that issue was off about 18% late in the day. In other news, traders remained a little pessimistic about China's unwillingness to go all out on a trade deal, with that nation casting doubts about this effort's resolution in the near term. The President, meantime, also expressed displeasure with the level of Federal Reserve interest rates, especially compared to rates in other nations.
The market then meandered about, pressing back and forth, but never varying much from where it had been for most of the day. At the conclusion of trading, the Dow pummeled by HD shares, fell 102 points; the S&P 500 was off a bare two points; and the NASDAQ, boosted by tech, rose 21 points.
Market breath was divided, while the small-cap Russell 2000 rose modestly, as traders sought the comparative safety, apparently, of issues that have less to do with global trade winds. All told, it was essentially another day of marking time for the bulls and the bears.
Looking ahead to the middle day of the week and ahead to the Fed minutes from its last FOMC meeting, we see that stocks were lower in Asia overnight on heightened trade tensions with China, while in Europe, the leading bourses are thus far showing early losses, as the President threatened higher tariffs on China this morning if the latter does not strike a trade accord. In other markets, oil prices are edging a tad lower and Treasury note yields, off for several days in succession, are down again in early action. All of this is leading up to a lower opening on Wall Street, if the moves to date in the equity futures are sustained.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
