After the Close
U.S. stocks were mostly lower at the end of the day, after some afternoon profit taking negating some pockets of positivity from the morning hours. Investors are still digesting the incoming administration’s policies. And today’s market action seems to be in line with the post-election normal. Basic materials and banking stocks fared notably well today. The healthcare and technology groupings suffered. The indexes told a similarly constructed story. The tech-heavy NASDAQ shed value throughout the day, stoked by ongoing trade-related ambiguity. The S&P 500 was mixed-to-positive for most of the day, until an afternoon economic release (discussed below) moderated these gains and dragged the average below the breakeven line. Finally, the Dow Jones Industrial Average rose above the 19,200 threshold several times throughout the day, before falling back in mid-afternoon and into the close.
Today’s most important economic update came from the Federal Reserve, and specifically its release of the Beige Book. The monthly economic summary showed that seven of the central bank’s 12 districts saw moderate or modest growth from October to mid-November. The five districts that saw anecdotal growth had stagnated or retreated listed several reasons for their relative lack of optimism, most of which are related to the upcoming administration’s policies. The Boston branch, for instance, is concerned that the local tech industry and, accordingly, the commercial real estate market, would suffer under Mr. Trump’s hegemony; Cleveland is waiting to see more about the President-elect’s tax code before classifying its outlook as positive. Still, the majority of regions see an improved outlook and, if anything, we believe the Beige Book strengthens the growing case for a tightening of monetary policy in two weeks.
Meantime, oil had its best day in recent memory, following news that OPEC’s member nations had agreed to curb oil production. The likelihood of an accord had swung from likely to impossible in recent months, but it appears now that per-barrel prices are set for a long-awaited run up. U.S. crude per-barrel prices soared as much as 10% today, closing at $49.49. Next, the cartel will need to convince and police non-members in an effort to make sure output remains controlled. Fittingly, energy was far and away the biggest gaining sector on Wednesday.
That wraps up November, a month which saw the strongest Dow and S&P gains since March. So, as the Fed’s December meeting approaches, we continue to expect a modest interest rate hike. Thereafter, as a means of reining in inflation, several additional raises will probably be enacted. Though the incoming Presidential administration adds some uncertainty to the market, investors have been largely optimistic that better-for-business political and regulatory developments lie ahead. – 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 - 11:55 AM EST
The major U.S. equity indexes are delivering a mixed performance in a directionless day of trading on Wall Street. Investors need to not look any further than at the performances of the Dow Jones Industrial Average and the NASDAQ for such confirmation. The index of 30 bellwether companies is trading nicely to the upside on the strength of its energy and financial components, while the tech-heavy NASDAQ is in the red, hurt by a weak showing thus far from the healthcare and technology stocks. Market breadth clearly does not favor the either the bulls or the bears, as the spread between advancing and declining issues is razor thin on both the Big Board and the NASDAQ.
From a sector perspective, it is nearly an even split between up and down arrows among the 10 major equity groups as we near the midday hour on the East Coast. However, dominating the conversation on Wall Street this morning is the energy sector, which is up more than 4% on optimism that OPEC leaders will reach an agreement to cap oil production in the coming months. Up until today, there have been concerns that Saudi Arabia and Iran (the latter has begun pumping large quantities of oil since the West and Iran agree to terms on a nuclear deal that lifted sanctions on the rogue nation). The two Middle Eastern nations have had a bitter relationship, complicated by religious, political and economic differences. In the end, it will come down to whether OPEC can agree on a way to spread the production cuts. Not surprisingly, oil prices have jumped on both the New York Mercantile Exchange and on the Continent. The stocks of the oil companies are trading notably higher today. There is also some buying interest in the industrial, basic materials and financial groups. Conversely, the utilities (the biggest laggard among the group) technology, and healthcare stocks are out of favor. We sense that comments from Vice President-elect Mike Pence last night that the new Administration’s first line of business will be to repeal the Affordable Care Act is hurting the sector this morning. The utilities are being hurt by the rise in fixed-income yields so far today.
Meantime, the U.S. economic news continues to be market supportive. Yesterday, the Conference Board reported that the Consumer Confidence Index soared to 107.1 this month, up from 98.6 in October. It was the highest reading since July, 2007 and a good sign during this all-important holiday shopping season for the retailers. And today, private-payroll processor Automatic Data Processing (ADP) announced that the private sector added well over 200,000 positions this month, a good sign ahead of this Friday’s much-anticipated report on nonfarm payrolls from the Labor Department. The encouraging economic data of late, the near-complete supportive third-quarter earnings season, and the pro-business Trump rally have the major market averages at or near record highs on the final day of this very good month for those long equities.
Will the month of November fittingly close on a high note for traders? Our sense is that will likely depend on what news we get from Europe later today on the ongoing OPEC negotiations. 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
Following a modest day of profit taking to start the week, after three weeks of almost uninterrupted market gains, Wall Street was back to its winning ways yesterday morning. The early, and modest, improvement was helped to a degree by a pair of strong economic reports. Specifically, before the market opened, the Commerce Department reported an upward revision in third-quarter GDP growth. Initially estimated at 2.9% (which came on the heels of pedestrian gains of 0.8% and 1.4%, respectively in the first two quarters), the revised increase came in at 3.2%.
Not only was the aggregate increase better, but a core component, consumer spending, rose more strongly than earlier estimated. Also, inventory building, a key factor in the latest quarter's increase, was more modest than initially estimated, and that could have positive ramifications going forward. On the other hand, business investment's increase slackened off in the latest revision. All told, however, the new figures were positive, as was a second economic report, consumer confidence, which saw a much better-than-expected increase in November.
So, stocks got an early lift. However, after this strong post-election surge, which has seen the Dow Jones Industrial Average push past the 19,000 mark, with nary a look back, additional dramatic increases will likely be hard to fashion. Thus, the early lift from these back-back strong economic reports was modest, with the Dow's gain holding in the 30-to 40-point range for the most part. But the technology sector was strong, so the NASDAQ was up much more proportionately, sustaining gains around 30 points through the early hours of the afternoon.
It should be noted that this was the penultimate session of the month, with some likely adjustments on tap for today as funds seek to end the month on a positive note. The market's strength this month has been fashioned on hopes for an aggressive program to rebuild our crumbling infrastructure, notably our roads, bridges, tunnels, and airports. Of course, much remains to be debated in Congress and plans need to be formulated by the incoming Administration. For now, the promise of a bigger commitment to such building has caught the eye of Wall Street, which imagines faster economic growth, as a result.
As to the stock market down the stretch, the early gains generally persisted, although there were exceptions, as the temptation to buy for the moment has offset most inclinations to further take profits. Thus, prices just drifted into the close, with the modest earlier increases holding to some extent. In addition to the reluctance to commit much in the way of new funds due to the overbought nature of the market, there also was some concerns ahead of this Friday's non-farm payroll report for November, which is expected to show an increase of 175,000 positions, but which always can contain major surprises. So, for now, caution may prevail.
As we headed for the close, the market retained its small gains, with the Dow Industrials, once up some 65 points, ending matters with the Dow holding on to 24 points of that advance, while small gains were chalked up by the S&P 500 Index and the NASDAQ, with the latter index giving away most of its mid-session-best increase of some 36 points. The small-cap Russell 2000 Index, a leader in the recent post-election price surge, closed lower for a second day in a row.
Now, a new day begins and one that will see the release of the Federal Reserve's Beige Book economic summation some five hours from now. That key compilation will help the central bank to formulate monetary policy going forward, specifically the lead bank's FOMC meeting toward the middle of next month. Our expectation is that the bank will raise interest rates at that time and then lift borrowing costs on several occasions in 2017. As to the current session, the early returns from Asia show that stocks were mixed overnight, while the bourses are nicely higher in Europe thus far this morning.
As to our futures on this final day of the penultimate month of 2016, the early read on the key indexes is positive, suggesting that the on again, off again rally so far this week may be back on again in the early going today. Looking out several hours, the market final tale may well be told by the composition of the aforementioned Beige Book. Stay tuned. - Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
