After the Close
The equity markets delivered a mixed performance today. At the end of the session, the Dow Jones Industrial Average was ahead 59 points; the broader S&P 500 Index was up slightly; but, the NASDAQ was lower by six points. Market breadth was neutral, with winners about even with losers on the NYSE. The major market sectors were also divided, with strength in the healthcare and industrial names offset by weakness in the technology and utility issues.
There were several economic reports issued this morning. Specifically, initial jobless claims moved up to 251,000 for the week ended November 19th, where analysts had been looking for a slightly better reading. Furthermore, durable goods orders rose 4.8% in October, surpassing expectations. Meanwhile, new home sales came in at 563,000 units, annualized, in the month of October, which was softer than anticipated. Finally, the University of Michigan’s consumer sentiment survey settled at 93.8 for November, exceeding the consensus forecast. Tomorrow there will be no reports issued and the stock market will be closed in observance of Thanksgiving. Business resumes on Friday.
In the corporate arena, a handful of companies delivered quarterly profit reports over the past 24 hours. Of note, shares of Deere & Co (DE) soared, after the equipment maker posted a better-than-anticipated report. Elsewhere, shares of Urban Outfitters (URBN) lost ground after the retailer posted disappointing results.
Technically, the equity markets continue to move up, as we enter the holiday season. Today’s buying positions the S&P 500 Index above the widely-watched 2,200 mark. It remains to be seen if the bulls can keep their buying campaign intact in the weeks ahead, and keep the broad index above this key technical level. - 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 - 12:35 PM EST
The majority of U.S. stocks are down on the final full trading day of the holiday-shortened week, with the post-Trump rally taking a backseat to a wave of profit taking before what will be a long break for many traders. (The equity market will close at 1:00 PM EST on Friday.) The S&P 500 opened lower than the plus-2,200 point milestone it closed at yesterday, and has only slightly recouped value from the early-in-the-day selling. The NASDAQ was down all morning, shedding as much as 32 points. Previously, the index, despite many of its tech components being threatened by some of the President-elect’s trade stances, also set highs during yesterday’s session.
There have been some positives, though. Following an early-morning lull, the Dow Jones Industrial Average set intra-day trading highs for the third time in as many days. Stocks in the industrials sector continue to outperform other areas, as Mr. Trump’s promises to invest heavily in infrastructure stoke optimism amongst investors. Consumer cyclical and energy equities also showed gains at times during the morning hours.
On the economy, investors were offered updated housing data this morning. It was in contrast to yesterday’s existing housing data, which revealed previously owned home sales had risen to a nearly 10-year high in October. Sales of newly constructed single-family homes fell 1.9% sequentially, according to the Commerce Department’s report. The previous month’s tally was revised 19,000 units lower, too. New home sales make up roughly 9% of the nationwide total—and often is a more volatile figure—so the miss likely represents more of a momentary lapse in an otherwise improving housing market.
Another day, another update from OPEC. The cartel meets next week, and investors have long hoped that its members will strike an accord that will address the glut of inventory in oil markets. Lower prices and unimpeded production by several of its constituents will continue to remain a headwind, unless Iraq and Iran come to terms with a drill-capping deal. While the likelihood became suddenly bleak yesterday, Iraq indicated this morning that it would support a cut in order to boost prices of crude.
For the remainder of the day, we expect some investors will take advantage of the more-attractive price points, specifically in those areas where Mr. Trump’s policies are expected to benefit. Looking ahead to next week, traders will remain focused on the new Administration, OPEC’s meeting, and the Federal Reserve’s upcoming two-day meeting on monetary policy, which commences on December 15th. We expect the central bank will raise rates moderately, based on recent comments by Chair Janet Yellen and several other Fed officials. - Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
Another day on Wall Street and another win for the bulls yesterday. That scenario has been quite commonplace over the last fortnight of trading, with stocks surging after the election of Donald Trump as the next President of the United States. President-elect Trump has promised a slews of initiatives when he takes office on January 20th, including significant tax cuts, higher spending on infrastructure, and fewer regulations, particularly in the banking sectors. Investors view such policies as very pro-business, which should give a boost to both Corporate America and the economy. With the possibility of such an environment on the horizon, investors have jumped back into equities in a big way since the morning of November 9th. On Tuesday, the Dow Jones Industrials, the NASDAQ, and the broader S&P 500 Index hit record intra-day highs for the second-consecutive session.
We again saw some major sector rotation on Wall Street yesterday. In general, the more economically sensitive sectors, led by the basic materials group, were the big winners. The consumer discretionary stocks also were very much in favor, with a strong report on existing home sales lifting the fortunes of the housing-related categories, most notably the stocks of the home furnishing companies. A better-than-expected quarterly report from discount retailer Dollar Tree (DLTR) also helped the consumer discretionary stocks. That said, not all was good yesterday, as we saw significant selling in the healthcare space, as President-elect Trump continued to reiterate that one of his first priorities when he takes office will be to repeal the Affordable Care Act. A repeal of the act or even an altered version would probably hurt the businesses of the hospitals, the managed care providers, and the medical supplies companies. Within the healthcare space, the stocks of the medical suppliers were under notable pressure. Disappointing quarterly results and reduced earnings guidance from medical device maker Medtronic (MDT) also weighed on the healthcare group.
The recent surge in equities, though, has pushed valuations notably higher. After the most recent ascension, the S&P 500 is now trading at more than 17 times its forward 12-month earnings. That is notably above the 10-year median of 14.7 times. Likewise, the S&P 500 Volatility Index (or VIX), a measure of volatility in the market, continues to fall, and now sits at a level that has historically indicated that the stock market is overbought and could be ripe for some profit taking if the news were to disappoint. However, investors still continue to throw caution to the wind, emboldened by the Presidential election results, a solid—and mostly supportive—third-quarter earnings season, and an improving U.S. economy. Speaking of the business beat, today will bring reports on new home sales, durable goods orders, consumer sentiment, and initial unemployment claims, as well as the minutes from the last Federal Reserve monetary policy meeting. We don’t think any of these reports are big enough to change the mood of Wall Street on a day where trading is expected to be light ahead of the Thanksgiving holiday.
Meantime, there are some interesting trends developing in the world’s financial markets, including divergent paths with regard to monetary policy. The prevailing thought is that the Federal Reserve is set to embark next month on a monetary tightening course, while Europe will continue its highly accommodative monetary policies, including its ongoing massive bond-buying program. This has pushed the U.S. dollar to a 14-year high, while bond yields in Germany have fallen to record lows. The gap between U.S. fixed-income yields and equivalent European yields is at its widest in more than 10 years. Against this backdrop, world equities are mixed today, with the indexes in Asia (Japan’s equity market was closed overnight) finishing higher, while we are seeing some profit taking among the major bourses in Europe.
With less than an hour to go before the commencement of trading stateside, the equity futures are presaging a modestly higher opening for the U.S. equity market. Regardless of today’s outcome, it will be a happy start to the holiday season for those long equities, with the major averages likely to finish at or near record highs this afternoon. And with that in mind, we would like to wish all of our subscribers a safe and happy holiday. 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.
