After The Close
Stocks took a breather from their post-election rally and closed the week lower on Friday. At the close, the Dow Jones Industrial Average was off 202 points; the NASDAQ slumped 124 points; and the S&P 500 gave back 26 points. The broader market followed suit, with about two stocks declining for every one advancing on the New York Stock Exchange. More stocks hit 52-week lows than highs.
Among the stock market’s major sectors, information technology stocks performed poorly. Tech shares have been among the leaders of the historic bull market in recent years, and it is generally tough for the major averages to make headway without a good showing from that bellwether group.
Some concerns regarding tech include valuations, increased regulation, and rising competition. Those trepidations resurfaced to an extent today, following several days of gains.
Energy and basic materials stocks also lagged. Oil prices officially entered bear market territory after falling 20% from their early October high. There had been a feeling that oil supplies would tighten when new sanctions on Iran took effect this week. But the granting of waivers for several countries that import a sizable amount of barrels from Iran diminished that threat.
In addition, a rise in domestic oil supplies has dampened sentiment toward petroleum producers, while concerns that global rifts regarding trade and tariffs will reduce oil demand have not gone away. It now looks as if OPEC may consider pumping less to support prices.
On the plus side, shares of “Steady-Eddy” consumer staples companies showed relative strength today, as is their tendency when the bears are in control.
Among individual names, the stock of entertainment giant Walt Disney Co. (DIS – Free Disney Stock Report) bucked the downtrend after the company reported better-than-expected profits. Disney enjoyed strength in its traditional film and theme park segments, and is rolling out a streaming service.
In economic news, the government noted that a closely watched inflation measure, the Producer-price index, rose more than anticipated in October. The data contributed to the session’s weak tone, given that it provided another reason for the Federal Reserve to continue raising interest rates.
The Fed noted on Wednesday that further rate hikes are likely in the pipeline. Next week, the Consumer-price index comes out.
Despite the selloff on Friday, stocks rose broadly for the first full week of November, exhibiting a better tone than was the case during a volatile October.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Wall Street opened on a rather muted note Wednesday, a day after a dramatic rally by the bulls had taken the Dow Jones Industrial Average up nearly 500 points and to a close above 26,000. The gain, coming a day after the conclusion of one of the most bitter mid-term elections in memory, was all-inclusive, taking hold from the open and remaining in place until the close. It appears as if the Street was happy about the result, which was expected and will give us at least two years of divided government. Then, after those fireworks during the middle session of the week, the focus shifted abruptly to the Federal Reserve.
That is because the nation's central bank concluded its latest two-day FOMC meeting yesterday afternoon, at which time it voted to keep interest rates unchanged. Meanwhile, the bank, which already has increased borrowing costs three times this year, remains likely to vote in a fourth rate hike next month and then several more in 2019. Here, as well, the Street was expecting such an outcome. Regarding the equity market, investors engaged in watchful waiting yesterday morning as well as a little profit taking after the dazzling rally the day before.
The guessing on the Street, meantime, is that the Administration's business-friendly policies will not be disturbed by the shift in the House of Representatives, but that some of the rhetoric, especially on trade, may tone down a bit given the revised landscape. Also, there are some hopes that a bipartisan deal can be struck on the infrastructure. Also, there are expectations that with the economy still on a strong upward course and earnings continuing to mostly cooperate, we could yet be treated to a nice yearend rally. We shall see. In any event, stocks meandered about through mid-morning yesterday with little overt direction.
There was some incremental firming, meantime, as the morning wound down, with the Dow going positive to the tune of some 90 points. However, after cutting its losses a little, the NASDAQ resumed its slide, albeit not all that strongly as traders awaited the conclusion of the Fed's latest meeting on monetary policy. The Dow's advance would wilt as we approached the 2:00 PM hour, finally settling in just above the neutral line. Then, as the meeting ended and the bank announced that, as expected, there would be no rate hike at this time, the Dow climbed back to a gain of 50 points.
However, that advance would run its course in short order and a fairly broad, but still, contained decline would set in, with the Dow briefly falling by close to 100 points as we approached the final hour of trading, before some buying followed that pared the deficit. The NASDAQ and the S&P 500 were off more sharply, but still did not eat all that much into the gains of the prior session. A sense that another rate hike was likely in December along with some growing belief that next year could see as many as three interest rate increases as the Fed expressed optimism on the economy may unnerved traders.
Things would then stay range-bound into the close, with just a modest downward bias to the session until the close when the Dow firmed a bit, ending matters ahead nominally. However, the S&P 500 Index, the NASDAQ, the S&P Mid-Cap 400, and the Russell 2000 all fell on the day, while losing issues held a comfortable plurality over advancing stocks on the Big Board. All told, this action would suggest no second thoughts following Wednesday's big rise, with the market mostly standing pat, albeit with some modest downward drift for much of the day.
Now, a new day and following a relatively calm session stateside yesterday, stock were lower in Asia overnight, after the Fed meeting, while in Europe, the bourses are trading with losses, as well. Also, oil prices, which fell into bear market territory in the latest session, are showing added declines in early action, while Treasury yields, which climbed to 3.23% on the 10-year note yesterday afternoon, are now at 3.21%. Finally, on this final trading day of a generally positive week for equities, our futures are now suggesting a lower opening when trading resumes later this morning after the Fed signaled that it is likely to stay the course on rate increases.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
