After The Close
The stock market got off to a weak start this morning, but managed to recover considerable ground as the session progressed. By the close of trading, the major averages landed in positive territory. Specifically, the Dow Jones Industrial Average was ahead about 34 points; the broader S&P 500 Index was up five points; and the technology-heavy NASDAQ was higher by 51 points. Meanwhile, market breadth showed a somewhat divided session, with decliners outnumbering advancers on the NYSE. From a sector perspective, the energy and financial issues moved lower, while the technology names managed to press ahead.
There were no major economic news items released this morning. Tomorrow, the Producer Price Index for the month of November will be reported, with the Consumer Price Index following on Wednesday.
Traders will likely be paying attention to these issuances, as they look for signs of rising inflation. Of note, while the Federal Reserve monitors the health of the broader economy, inflation levels are also used to determine the interest-rate policy.
In the corporate arena, few major companies delivered quarterly profit reports today. However, there was some M&A news worth mentioning. Specifically, shares of Nutrisystem (NTRI) soared today on reports that the company has agreed to be acquired.
In general, the equity markets have been quite volatile lately. After pulling back last week, stocks may be starting to find some support. However, it remains to be seen if the bulls can mount a meaningful buying campaign in the remaining weeks of 2018.
– Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The most recent abbreviated-week of trading on Wall Street—the stock market was closed on Wednesday in honor of the passing of President Bush—was a very difficult one for those owning stocks. The week started on a positive note, with the equities rallying on hopes of a breakthrough in talks between the United States and China on trade, but those good tidings didn’t last long as further commentary showed the two nations are still far apart on reaching a compromise. On Tuesday, the market took a turn for the worse, with an inverted yield curve for the three- and five-year Treasury notes—though not as telling as an inverted curve for the two- and 10-year notes—unnerving investors. Historically, an inverted yield curve, where short-term notes are yielding more than long-term debt, has indicated that the economy is slowing and preceded a number of recessions. Then on Friday, weaker-than-expected job growth further scared investors, as it, along with weakening housing data, may be further signs that U.S. economic growth is starting to slow.
Adding up all of the aforementioned variables, it is not surprising that the CBOE Volatility Index (or VIX) spiked last week, ending at 23.40. The major U.S. equity indexes, hurt by sharp declines on Tuesday and Friday, suffered huge setbacks for the week, with respective declines of 4.5%, 4.9%, and 4.6% for the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index. In general, none of the sectors (small and mid-cap stocks also suffered big losses) and the major equity groups, save for the defensive-oriented utilities, were immune to the notable selloff.
On Friday, it was another seas of red ink, with the Dow 30, NASDAQ, and S&P 500 falling 559, 219, and 63 points, respectively. It should be noted that the S&P 500 Index dropped below the 2,700 support level, which may not be a good scenario for the bulls, and the NASDAQ fell south of the 7,000 mark. On the final trading day of last week, the biggest laggards were the technology, industrial, and healthcare groups. The sharp selloff in the technology sector was the primary culprit behind the more-than-3% setback for the tech-heavy NASDAQ Composite.
Our sense is that the worries about the negative impact of the trade war between the world’s two-largest economies on the health of the global economy is casting a huge cloud over trading. It is looking like a big headwind for the bulls, and when coupled with the small cracks in the U.S. economy that are starting to surface, it is not surprising that investors are taking profits in a big way in a market that was way over valued after an historic bull run. The trade war headwinds also are increasing doubt among Wall Street participants that a year-end Santa Claus rally will unfold this year. All of the uncertainty in the market these days, especially with regard to international trade, along with the aforementioned inverted yield curve for the three- and five-year Treasury bonds, has really shaken the investment community, and hence the spike we saw in volatility and selling last week.
Looking ahead, we expect much of the same factors, including trade concerns, to drive trading, especially with fourth-quarter earnings season still more than a month from kicking off. On the business beat, we will get reports on producer and consumer prices, as well as the reading on November retail sales. The latter data will be closely scrutinized as it will include sales from Black Friday and Cyber Monday, two very important days for the retailers. Given the consumer accounts for roughly two-thirds of the nation’s economic output, the retail sales report may have an impact on the stock market and, at the very least, the performance of the retailing stocks. Investors should also note that the European Central Bank meets later this week, with investors waiting to hear what the central bank has to say about reducing its monetary stimulus measures.
With less than an hour to go before the commencement of trading stateside, the equity futures, which were initially indicating some continued selling at the opening of U.S. stock market, have turned slightly positive. However, investors should not that we are seeing selling in the international markets, with the major European bourses following Asia’s main indexes lower on fresh signs of slowing growth worldwide and growing fears that simmering the tensions between the U.S. and China may spoil any chances of a trade deal. 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.
