After The Close
Early trading was mixed today, as participants waited for the results of the Federal Reserve’s FOMC meeting. After the meeting’s conclusion, it was affirmed that interest rates were held steady between 2.00% and 2.25% in November. Still, a few changes were made to the accompanying statement. The Fed noted that “business fixed spending has moderated”, which signals a change from the prior economic data, and may be caused by increased trade tensions with China. On the other hand, the bank stated that “unemployment has declined” and has hit the lowest levels since 1969. Overall, the conclusion was reached that “economic activity has been rising at a strong rate”.
Additionally, the Fed has hinted at a further rate hike in December and three more increases in 2019. The indices fell on the statement release, before quickly rebounding to their prior levels in the next few minutes. As the day progressed, the broader markets resumed their decline and hit fresh daily lows for a brief spell. Overall, the Dow Jones Industrial Average ended nominally higher, while the NASDAQ fell 0.5%.
Market breadth was somewhat narrow, as decliners outpaced advancers by a 1.4-to-1.0 ratio. Interest rate-sensitive financial sector stocks recorded the strongest performance today, while energy-related issues were among the weakest performers.
Crude oil declined again, and wound up firmly in bear market territory, as oversupply concerns weighed on sentiment. The EIA report on natural gas also showed a bigger-than-expected supply increase. These factors contributed to the weakness in the energy stocks today.
Looking ahead, the University of Michigan will report its final numbers for the October consumer sentiment index and issue preliminary numbers for November, tomorrow morning. In addition, the Producer-Price Index for October is slated for release. On the earnings front, Adient PLC (ADNT) will report its fiscal fourth-quarter results before the opening bell.
- John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Investors apparently like divided government. At least that would be the logical conclusion to be drawn from the very strong stock market opening yesterday, in which the Dow Jones Industrial Average soared by more than 250 points in the first hour of trading on the morning after the results were in from one of the most divisive mid-term elections in memory. The NASDAQ, on some recovery in high-flying names, such as Amazon (AMZN), also did well, jumping more than 100 points in early action. The S&P 500 Index was likewise part of the story, moving up by better than 1%, as well, while the smaller-cap composites lagged a little.
One reason for the solid reception was seeming relief that the election results yielded no big surprises. Divided government, with the Democrats taking back control of the House of Representatives, had been widely expected for weeks and the Street had been adjusting to that probability well in advance. The belief in some quarters is that gridlock--which now might evolve in Washington--will be good for the economy and the market. We shall see. The end of the election also brought a sense of relief that an overhang on the stock market had been removed.
However, it may be a bit much to expect all of the earlier business-friendly agenda to survive, although some of the tougher trade actions may start to be lowered a little. Now with the election over, the focus should return to the economy (which remains sound) and earnings (which have generally been supportive), albeit with some individual headwinds of note. A number of those earnings disappointments, in fact, surfaced yesterday, with consequent sharp price reactions during the day. As to the economy, there again was little news of note, although the Federal Reserve's latest FOMC meeting did begin earlier in the session.
There also will be little in the way of news today on the economic calendar, but plenty to talk about on the monetary front, as the Fed is due to conclude its two-day FOMC meeting at 2:00 PM (EDT) this afternoon. No change in interest rates is the popular consensus, with some suggestion that a further rate hike will be forthcoming at next month's bank gathering. Any surprises on the monetary front, in the Fed statement that follows, or in the Fed Chair's post-meeting news conference could be consequential. But for now, that meeting should prove rather uneventful. The Producer Price Index, a key inflation gauge, then is scheduled for release on Friday along with a pivotal consumer sentiment survey.
Meanwhile, the seeming appeal of a prospected divided Congress continued to increase, as the session moved along with the Dow surging to a gain north of 350 points as the afternoon began, with the NASDAQ climbing by more than 150 points at that juncture. Still, as earnings season has moved along to the smaller-cap companies, a number of disappointments emerged, taking those issues down in price, some rather sharply. One apparent beneficiary of the election were the drug stocks, with several rallying notably yesterday. All told, it was a buying wave of major proportions as the day progressed.
The rest of the afternoon brought further gains, with the Dow surpassing 26,000 once again on an increase above 400 points on the day, while the NASDAQ soared past 7,500. The buying then would carry over into the close, with the indexes all ending the trading session at their best levels. Specifically, the Dow closed higher by a dramatic 545 points; the S&P 500 added 58 points; and the NASDAQ soared by 195 points, or 2.6%. Formidable gains also were secured by the smaller-cap indexes, although they did lag somewhat and could, if past norms prevail, out perform in the day ahead.
Looking at the day ahead, we see that shares in Asia were mostly higher overnight following the post-election relief rally on our shores, while in Europe, the early read on the key bourses is somewhat weaker. Also, oil prices are up and Treasury note yields, which were relatively flat yesterday, are now climbing slightly in early action. Finally, after yesterday's post-election fireworks, the U.S. equity futures are pointing to modestly lower start to the day ahead, as the Street awaits the Fed rate decision.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
