After The Close
Mid-Day Update - 11:35 AM EDT
The stock market opened grudgingly higher this morning, even as the much-anticipated employment report came up short of the mark. However, after that brief spurt, which saw the Dow Jones Industrial Average climb almost 40 points, to yet one more all-time high, and the NASDAQ tracked some 20 points higher, the market settled onto a mixed path, in which the Dow and the S&P 500 moved a bit short of the breakeven line, while the NASDAQ gained further. As to influences, Wall Street remains optimistic that the tax reform effort will pass, that the economy will continue to expand steadily, and that earnings will come through.
Specifically, the Labor Department reported this morning that the nation had added 261,000 net new jobs in October. That was a solid number, on an absolute basis, and was much improved from the upwardly revised, but still hurricane-challenged, 18,000 rise in non-farm payrolls in September. But it also was shy of expectations (a 310,000 job gain had been forecast). What's more average hourly earnings dipped a penny, while the labor-force participation rate fell from 63.1% in September to 62.7% last month. All the while the jobless rate eased from 4.2% to 4.1%. But that likely reflected a decline in people activity looking for work.
In other business news, the Institute for Supply Management reported that its survey on non-manufacturing activity came in at a strong 60.1% last month, up from a likewise impressive reading of 59.8 in September. This result, like its companion manufacturing release issued two days ago, saw strength in production, new orders, employment, export orders, and inventory stockpiling. This issuance was one more reason for our expectation that GDP growth, a solid 3.0% in the third quarter, will modestly surpass that level in the current three-month span.
Also, of note, earnings continue to be issued and, as before, the impact can be significant. For the most part, earnings season has been a reassuring one, but with some high-profile misses, along the way. Today's headliner has been Apple (AAPL – Free Apple Stock Report). That technology icon issued its quarterly metrics late yesterday to a rousing reception, as the stock is up another $4.30 a share so far this morning. On the other hand, Starbucks (SBUX) disappointed somewhat, but apparently not enough to chill that stock, as the coffee retailer's shares are percolating a bit this morning, gaining about $1.65.
Elsewhere, tax reform is on the minds of investors, as the GOP has released its massive, albeit somewhat controversial, package of changes, which are generous on the corporate side, but more uneven with respect to individuals. We suspect this will lead to a lot of horse trading in the aisles of Congress before possible passage later this year or in 2018. Finally, there is the Federal Reserve, where just two days ago the central bank held the line on interest rates and where yesterday afternoon, the President introduced his nominee, Jerome Powell, to replace Janet Yellen as Fed Chair.
Meanwhile, there has been little reaction to this nomination, as Mr. Powell, a Fed governor already, is seen as being largely in the mold of his predecessor. However, his nomination must still be approved. Overall, this is an uneven session on Wall Street as the morning winds down, with the Dow now turning nominally positive, along with the NASDAQ, but with the S&P 500 and the Russell 2000 no better than breakeven.
— Harvey S. Katz, CFA
At the time of this article's writing, the author had positions in AAPL.
Before The Bell
Following on the heels of Wednesday's seesaw session, which started out strongly but faded at the end, the stock market began the penultimate trading day of the week in mixed fashion, with the Dow Jones Industrial Index quickly moving out to a small early gain, while the other averages showed little in the way of strength. As before, most investors remained focused on earnings, while at the same time keeping an eye on the Federal Reserve, where Jerome Powell was expected to be announced as the bank's nominee to succeed Janet Yellen as Fed Chair. The President affirmed that expectation later in the day.
Meantime, the anticipated Powell nomination (it was made official later in the day) was greeted with little fanfare, as it was widely believed he would follow in the footsteps of the current Fed Chair. Elsewhere, earnings remained front and center, with several key wins and a number of misses being posted. One such shortfall, and a clearly negative reaction to it, was engendered by Teva Pharmaceutical (TEVA), after the generic drug maker fell short on the profit line and reduced expectations. In all, the market, after that brief run-up by the Dow at the outset, moved on to a lower path after the first half hour.
The losses increased further as we moved more deeply into the morning, with the Dow's deficit climbing past 80 points within the first hour. Speculation about proposals to be offered up in the tax bill being offered up by the Republicans, including a reduction in the maximum corporate tax rate from 35% to 20%, also seemed to be weighing on sentiment somewhat. Although this is a popular feature, its chance for passage is uncertain, at best, given the presumptive increase in the deficit following such an adjustment. So, stocks wilted. But earnings disappointments seemed to be a bigger worry as the morning moved along.
That's because there were several profit misses. One casualty on this front, and a consequent major decliner, from a stock market standpoint, were the shares of household products maker, Newell Brands(NWL). That company, as noted, came up short on the earnings side, and the stock, in response, tumbled more than 25%, at its nadir, making it the largest casualty in the S&P 500 for a time. In all, while the stock market moved off its morning lows rather notably, it stayed mixed, at best, as noon approached. A bit of nervousness ahead of several after-the-bell earnings reports also affected trading as the morning ended in New York.
The stock market then attempted to firm up after lunch, with the Dow moving modestly into the plus column, holding gains of some 20 to 40 points, for the most part. The smaller averages also edged into the black, while the S&P 500 and the NASDAQ stayed a little under water. In addition to reacting to earnings and looking ahead to the just-reported employment figures (discussed below) Wall Street was holding its fire ahead of the formal Powell nomination. When that call was made official, near the close of trading, the initial reaction was positive.
The market then drifted higher as the session wound down, with thoughts, apparently, on earnings, taxes, the Fed, and the economy, with particular emphasis on the employment outlook. In all, buoyed by this late push, the Dow moved up to yet one more all-time record high, passing the 23,500 mark, finally closing at 23,516. That produced a session gain of 81 points. But there was little else to cheer in the close, with the S&P 500 virtually flat and the tech-laden NASDAQ off slightly. Then, after the close, additional profit reports were issued.
On this latter count, shares of Apple Inc. (AAPL - Free Apple Stock Report) rose nicely after its report was issued in the after hours, while Starbucks (SBUX) stock eased a bit on a slight revenue miss. As to other news, shares in Asia were generally higher overnight, while on the Continent, the European bourses are mixed thus far this morning. In other news, the much-anticipated employment report was issued at 8:30 (EDT) this morning and it showed that 261,000 jobs had been added last month. That was below the 310,000 total forecast. Meantime, the jobless rate ticked down again, easing from 4.2% to 4.1% for the latest month.
In a disappointing turn of events, the labor-force participation rate fell from 63.1% in September to 62.7% last month. Also of note, the total non-farm payroll employment for August increased from 169,000 to 208,000; the change for September went from a loss of 33,000 jobs to a gain of 18,000 payrolls. Note that the September slump reflected the effects of several hurricanes that struck the United States and Puerto Rico. Finally, average hourly wages for October ticked down slightly ($0.01), which, along with the dour labor-force participation rate, was a disappointing development. So, this was a less-than-compelling report. However, the U.S. equity futures are posting early gains, in spite of the economic news, largely on an anticipated large early gain in Apple.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
