After the Close
The U.S. stock market started off the new week on a lackluster note. At the close of trading, the Dow Jones Industrial Average was down roughly 54 points; the broader S&P 500 Index was off 12 points; and the NASDAQ was lower by 30 points. There was a negative tone to today’s session, with decliners easily outpacing advancers on the NYSE. Furthermore, the major equity groups were divided, as notable gains in the utility stocks were offset by losses in the energy and healthcare names.
There were no important economic news items released this morning. Tomorrow the pace should pick up somewhat, as the second estimate for third-quarter GDP is scheduled to be reported. In addition, the consumer confidence figures for the month of November are due out. Meanwhile, traders should bear in mind that at the end of the week, the government is slated to deliver the employment figures for the month of November. Given that traders have been fixated on the Federal Reserve’s monetary policy lately, that report will likely command a good deal of attention, and may even influence the market’s direction over the next few days.
In the corporate arena, few high profile companies posted profit reports this morning. The third-quarter earnings season is now largely over, and traders will likely be looking ahead to the close of the calendar year.
Technically, the equity markets took a breather today, which is understandable, given the progress that has been made over the past couple of weeks. Meanwhile, the S&P 500 Index remains just at the 2,200 mark, which will likely be an area to watch in the days ahead. - 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 - 11:55 AM EST
The major U.S. equity averages, which entered the week at lofty levels, are trading modestly lower as we approach the midday hour on the East Coast. There has not been much news of note to drive the markets this morning, so it perhaps is investors taking a bit of a breather after a fortnight of trading that saw all of the major averages hit record highs. The Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index are all off about 0.4% in late-morning action. Overall, declining issue are leading advancers on both the New York Stock Exchange and the NASDAQ. Ironically the spread is a bit wider on the NASDAQ, despite the technology stocks being among the best performers on Wall Street. Weakness in the consumer discretionary sector appears to be the main impetus for the NASDAQ’s pullback.
What we are seeing is some notable sector rotation in play. The primary reason has been the drop in fixed-income yields today (the yield on the benchmark 10-year Treasury is down five basis points). The pullback in yields is hurting the financial stocks, which have been on a phenomenal run since the U.S. Presidential Election, as President-elect Donald Trump has promised to reduce regulations, and the banking sector would be a prime beneficiary. Of note, shares of Bank of America (BAC), which were up more than 20% since the election, closing at an eight-year high on Friday, are trading lower today. Conversely, the reduction in fixed-income yields is helping the fortunes of higher-yielding equities, which makes them more attractive to income-oriented investors. The utilities and telecommunications groups are in positive territory. In general, most of the economically sensitive sectors are under some selling pressure.
Meantime, we got some news from the oil industry this morning, as OPEC members meet this week to discuss the oversupply of crude in the market. Of note, Iraq's oil minister said his country would cooperate with the group to reach an agreement "acceptable to all.” OPEC leaders are trying to get the Middle Eastern oil producers to agree on a production cap that would reduce the supply of crude in the global market and help push prices higher. Oil prices are rallying in both New York dealings and on the Continent today, but would most likely fall if the group fails to reach a deal by its November 30th deadline. This remains a fluid situation, with still many variables to be ironed out before a deal may be struck. Thus, we expect oil prices to remain volatile over the next few days.
Looking ahead to the remainder of the session, much like this morning, we don’t anticipate that the major equity averages will stray too far from the neutral line. Perhaps investors are taking a slight breather ahead of what will be a busy week of economic news, highlighted by Friday’s report on nonfarm payrolls for the month of November. The expectation is that the nation added 180,000 new jobs this month and the unemployment rate held steady at 4.9%. The employment data always has the potential to be a game changer for the market. 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.
Before the Bell
The month of November, which only has three more trading days to go, has been an exhilarating — and predominately good — one for those long equities. It did not start out that way, as the equity averages began the 30-day stretch with a string of losses ahead of the November 8th presidential election. Investors typically do not like uncertainty and the days leading up to the voting brought a lot of questions. However after the election results came in, which saw Donald J. Trump win the White House and the Republican Party maintain control of the Senate and the House of Representatives, a buying frenzy ensued. The growing optimism is that President-elect Trump will put forth a pro-business agenda, which includes massive corporate tax cuts and a rollback in banking regulations, when he takes the oath of office on January 20th that may be a boon for both Corporate America and Wall Street. That scenario has pushed the major equity indexes to record highs, culminating with the Dow Jones Industrial Average, the NASDAQ, the broader S&P 500 Index, and the small-cap Russell 2000 all at all-time highs on the same day this month for the first time since 1999.
There has been a desire by most investors to add risk to their portfolios this month, on the aforementioned premise that the Trump Administration will be business friendly. Leading the move higher over the last fortnight of trading has been the economically sensitive sectors, with big advances for the financial and basic materials groups. In particular, the banking stocks have jumped on hopes that fewer regulations under President-elect Trump and a sense that the Federal Reserve will begin to tighten the monetary reins, perhaps as soon as next month, will help the earning power of such lending institutions. In general, none of the 10 major equity groups have been excluded from the latest bull run, as even the healthcare group, which has been hurt at times recently by concerns about what will happen to the Affordable Care Act under the incoming Trump Administration, is trading to the upside. Within the healthcare space, the stocks of the drug companies have rallied since the election. There appears to be some relief in that sector that Hillary Clinton lost, as she promised to take a hard stance on drug pricing, which may have hurt the earning power of the pharmaceutical companies. That said,
All of the recent buying, including Friday’s respective advances of 69, 18, and nine points for the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index, has stretched the valuation of the equity market. In fact, the S&P 500 Volatility Index (or VIX), which ended last week below 14.00, sits at a level that clearly suggests that the equity market is overbought and susceptible to some profit taking if the news were to disappoint. However, the question is where the possible negative headlines will come from to slow the bulls down, especially with third-quarter earnings season essentially in the books and the economic news mostly encouraging these days. Our sense is that the investment community will soon focus on the central bank and its monetary policy. The transition in the executive branch of the government also remains a fluid situation and may well continue to produce fodder for market pundits. As far as the business beat goes, it will be a busy week, with data due on manufacturing activity, jobs creation, personal income and spending, consumer confidence, and third-quarter GDP (revision), as well as the latest Beige Book summation of economic conditions from the Federal Reserve. A number of these reports have the potential to move the equity market. Investors should also be aware that we will be getting some news on the oil market this week, as OPEC members meet to discuss putting a cap on oil production to help alleviate the oversupply of crude in the global market.
Meantime, with less than an hour to go before the start of trading stateside, the equity futures are presaging some modest profit taking in the U.S. equity market. Likewise, the major European bourses are in the red as trading moves into the second half of the session on the Continent. 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.
