After the Close
U.S. equities started the day off on the same bullish note that has characterized post-election trading, but exhibited more up-and-down activity through most of the afternoon. Then, as the final hour of trading neared, a sudden jolt of buying drove the New York Stock Exchange higher, helping the NYSE composite to eventually finish the day 28 points ahead of where it began. At the close, advancing stocks outnumbered the declining issues by a more-than 2-to-1 ratio, driven especially by gains in mid- and small-cap equities.
Investors continue to digest news items related to President-elect Trump’s forthcoming changes to American economic and foreign policy. The typical beneficiaries – financials and basic materials stocks, among others – turned in another strong performance. The troubled healthcare sector remained immune from the rampant bullishness, shedding 150 basis points today.
The indexes told a similar story. The S&P 500 opened the day trading higher than the 2,200 point threshold, until a midday selling spree dragged the average below yesterday’s closing price. Sentiment recovered in the afternoon though, and the grouping bounced around the breakeven line for most of the afternoon, before ultimately finishing several points higher than that very milestone. The Dow Jones Industrial Average was the only major index that remained in positive territory from end-to-end, finishing the day above 19,000 for the first time ever.
Even the tech-laden NASDAQ has risen to all-time highs for consecutive days. This is in spite of Mr. Trump’s announcement that he would pull out of the Trans-Pacific Partnership, a move that could threaten to hurt tech companies with a presence in those nations. Still, investors are hoping that the promised America-first policies of the next Commander-in-Chief will be good for business. Overseas markets, however, may feel the brunt of the decision if trade agreements with the United States are threatened.
Oil prices fell modestly today, as hopes that OPEC could institute an accord to limit output were ostensibly dashed today. Reports that Iran and Iraq will not participate in any production-limiting talks at the cartel’s Vienna summit next week sent per-barrel values down a little over half a percentage point today. This is in stark contrast to the past week of optimistic news developments. This bullish tone persisted through this morning, when Nigerian OPEC delegate Ibrahim Waya declared the two members would come to terms with their compatriots. While nothing will be certain until the end of next week’s meeting, a stabilized global energy market by yearend looks less likely after today.
Meanwhile, the Federal Reserve will meet in several weeks to decide whether or not it will tighten monetary policy and raise interest rates. All signs in recent weeks, from weekly data reports to overall trading sentiment, have pointed towards a moderate hike at the central bank’s December appointment. Today’s existing-home sales growth hit a nearly decade-long high, continuing a streak of positive news items that suggest a steadily strengthening economy. Even the Fed’s own members have indicated as much, with Chief Janet Yellen offering her strongest remarks in favor of a year-end increase.
With two days down and one to go in this holiday-shortened week, we would not be surprised if the market took a breather after its recent strong run. - Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:15 PM EST
Another day, another record for the major U.S. equity indexes. Or, at least, that’s the way things initially seemed to be heading. The Dow Jones Industrial Average, S&P 500, and the NASDAQ all closed at new highs yesterday. Today, they opened modestly to the upside, and largely held that ground throughout the morning session.
Most of the enthusiasm in the last couple of weeks has apparently been fueled by hopes that the incoming Trump administration carries through on its campaign promises. Among them, increased spending on infrastructure, tax cuts, and less red tape for banks are all seen as being good news for the economy. Not surprisingly, basic materials, consumer cyclical, and financial stocks have been large beneficiaries of this more-upbeat outlook. Notably, stocks in the latter sector have charged ahead by more than 10% since the election, largely led by bank issues.
Adding to the exuberance, the National Association of Realtors reported today that existing home sales increased 2% for the month of October, making for an annualized rate of 5.6 million units. The tally was up 5.9% from last year, and it marked the highest pace of transactions in nearly 10 years. Also, the number for September was revised to 5.49 million units, versus the initial figure of 5.47 million.
Recent developments, though, could make comparisons more challenging going forward. Namely, the recent stock rally has been pulling investors away from the relative safe haven of U.S. government bonds, and as treasury prices have dropped their yields have gone up. Although higher yields are good news for banks, it’s just the opposite for borrowers—particularly home buyers. On point, the rates for fixed 30-year mortgages have gone up close to 40 basis points just over the past two weeks, to just under 4%. Although that’s still well below the historical average, further increases are certain to impact buyer decisions.
As for the market, traders were not able to sustain the early momentum, and the indexes hit their lowest points late in the morning. At the noon hour of trading in New York, the Dow Industrials, S&P 500, and the NASDAQ were all hovering around the breakeven mark.
Taking a quick look at the European bourses, the markets there also opened the day to the upside, but were holding on to most of their gains as the afternoon bell approached. London’s FTSE led the pack, rising just over half a percentage point, while France’s CAC-40 and Germany’s DAX were not far behind, with gains of 0.4% and 0.3%, respectively. – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
The first trading day of this holiday shortened week went to the bulls, which has pretty much been a daily occurrence over the last fortnight. Yesterday’s move higher, which included respective gains of 89, 47, 16, and seven points for the Dow Jones Industrial Average, the NASDAQ, the broader S&P 500 Index, and small-cap Russell 2000, has each average in rarified air. In fact, yesterday marked the first time since 1999 that Wall Street's four main markets are at all-time highs at the same time. The bulls have been in command since the day after the election of Donald Trump as next President of the United States. President-elect Trump has promised to bring a big pro-business agenda with him to the White House, which investors are thinking will have a positive impact on Corporate America and Wall Street. The Trump Administration also has pledged to roll back many of the financial regulations that were put in place by President Obama.
The recent bull run has seen a lot of sector rotation, with many of the economically sensitive sectors the biggest beneficiary. The financials stocks, most notably those of the banks, are on fire, with the prevailing thought that looser regulations and higher interest rates (the yield on the benchmark 10-year Treasury noted jump after the election results) will drive profits at the banking institutions. The basic materials and industrial stocks have also done well on hopes of increased spending on infrastructure under President-elect Trump. Conversely, the healthcare stocks have not fared as well, with concerns that a possible repeal of the Affordable Care Act would hurt the fortunes of the hospitals and managed care companies. Looking at yesterday’s performance among the 10 major equity groups, the aforementioned basic materials category and the energy sector were the big winners. Both groups were helped by a slightly weaker U.S. dollar, which makes commodities more attractively priced in overseas markets. The energy sector, which provided the leadership, also was helped by growing sentiment that OPEC will announce a cutback in production this month. Other sectors that stood out yesterday were technology and utilities.
It should be noted that yesterday’s move higher occurred on light volume. While it could be argued that the reduced trading activity was due to the upcoming holiday, it may also be a sign that the presidential-election rally may be losing some steam, with valuations looking stretched. The S&P Volatility Index (or VIX) sits at a level (12.39) that suggests that the U.S. equity market is overbought, and may be ripe for some profit taking if the news were to disappoint. However, the likelihood of getting enough bad news to change the mood of the market on this holiday abbreviated week appears unlikely, so we would not be surprised if the beat goes on for the bulls over the next two sessions.
Looking at the day at hand, the big news on the economy will come at 10:00 A.M. (EST), when the National Association of Realtors reports existing home sales data for the month of October. The consensus expectation calls for sales to come in at an annualized rate of 5.48 million homes, which would mark a slight improvement from the September figure. Tomorrow will bring reports on initial jobless claims, new home sales, durable goods orders, consumer sentiment, as well as the latest EIA status report on the energy sector and the minutes from the last Federal Open Market Committee meeting. Our sense is none of these reports will have a big impact on the overall economy, but the housing and consumer data could have an impact on the consumer cyclical sector. The consumer discretionary groups bears watching in the coming days, especially with the official commencement of the all-important holiday shopping season on Friday.
With less than an hour to go before the start of trading stateside, the equity futures are presaging a higher opening for the U.S. equity market. As noted above, right now we see little in the way of the bulls to slow their momentum, especially with trading volume likely to remain low until next week. 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.
