After The Close
Stocks bounced nicely on Wednesday on favorable news regarding trade relations with China. That nation has indicated a willingness to allow greater access to its markets, as well as increase its purchases of U.S. products, including soybeans.
Tensions earlier in the week had escalated with the arrest of the CFO of a China-based technology firm deemed not in compliance with U.S. sanctions on Iran.
Broadly, investor sentiment has slipped notably in recent weeks on the feeling that deteriorating international trade conditions would slow the economy and hurt corporate profits. For today, at least, there was a bit more optimism that the worst outcomes might not be realized.
In fact, the selling on Wall Street seemed excessive, and based on fear of the unknown.
The bearish tone has had the reverse effect in the bond market, where prices have risen, as the yield on the benchmark 10-year Treasury note has fallen below 3.00%. There had been indications not very long ago that the 10-year T-note might make a push toward the 3.50% range. The U.S. Treasury today sold $24 billion of 10-year notes right around 2.92%.
As for stocks, the Dow Jones Industrial Average on the session climbed 157 points; the NASDAQ added 66 points; and the S&P 500 gained 14 points. Market breadth was impressive on the upside, with advancing issues easily outpacing decliners. The major averages were well off their highs for the session, though.
Most stock market sectors advanced. Shares of basic materials, consumer discretionary, technology, and industrial companies performed especially well.
In other markets, oil prices in New York trading fell by about $0.50 a barrel, to just above $51.00, after having been higher for much of the day. Crude oil quotations have declined notably since early October on concerns that supplies are outstripping demand. More recently, bullish signs for oil include an OPEC-led agreement to reduce global production and a decline in U.S. inventories this week.
Overall, this was a good day for the market, but still one that exhibited an unsettled tone. The positive takeaway is that stocks could be poised for an extended rally if trade issues, most notably with China, show headway toward being resolved. But if further progress is not forthcoming, renewed market volatility arising from uncertainty might well arise.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
What a week for Wall Street--and it has been only two days. To recap, after the stock market plunged on Friday after the release of a government report on employment growth, which pleased almost no one, stocks fell back sharply again on Monday morning, with the Dow Jones Industrial Average quickly shedding more than 500 points. Once again it was worry over international trade matters, principally with China, concerns about the possibility of a slowing economy stateside, and uncertainty over the direction of the Federal Reserve Board policies in the months to come that held the buyers at bay in the early going.
However, not to be denied, the bulls would not surrender after that initial selloff, and these perennial optimists spent the remainder of the session clawing their way back, so that by the close that 30-stock composite and the S&P 500 Index were both incrementally in the plus column. The tech-laden NASDAQ fared much better, inking a solid win. It was a major early-week statement by the bulls and gave cause for some optimism going forward. Then, yesterday morning, after a mixed session in Asia and early gains in Europe, the U.S. stock market headed sharply higher at the open, with the Dow advancing by more than 350 points very quickly.
Once again, though, a reversal set in, with that index and the other large and small-cap composites giving up those early gains by the noon hour and then heading lower into the first part of the afternoon. Equities headed lower after some contentious talk broke out between the President and the Democratic leadership in Congress over boarder security. The President threatened to shut down the government if more monies were not allocated towards building the wall along our southern border. This continuing fight offset some earlier optimism that the U.S.-China relations might be improving.
This possible thaw followed a week of mixed messages and uncertain signs between the two economic behemoths. In any event, after that brief buying surge, the Dow would fall into the red by 200 points, before mounting another comeback attempt as we moved inside the trading day's final two hours. Clearly, such back and forth does not help market sentiment. At present, many pundits are either forecasting further lows in the weeks to come or a year-end rally. Whether we get one or the other or something in between will be heavily influenced, we sense, by the outcome of U.S.-China talks.
The recovery would prove to have legs, as the Dow, once off 200 points, would surge anew, climbing to a late-session advance in the 200-point range. Once more, however, political drama in Washington and worries about China proved too much for the bulls to handle, and stocks pulled back as we neared the bell. It would seem as though skittish investors are wary of being long overnight, especially after conflicting statements regarding China were issued. Here, the Administration cited optimism about a possible trade breakthrough countered by a ratcheting up of tensions in regard to other matters with that country.
So, stocks stumbled into the close, ending matters with little aggregate change on the day. On point, the Dow would close off by 52 points; the S&P 500 would barely move, and the NASDAQ would gain 11 points. The S&P Mid-Cap 400 and the small-cap would each end modestly lower on the day. Given the intra-day fireworks, the final numbers do not even begin to tell the story. What this latest session does do, however, is again shred the confidence of weary investors and suggest that upcoming sessions will again show elevated volatility.
Looking out at a new day now, we see that stocks were strongly higher in Asia, while in Europe so far this morning, the major bourses are showing early gains, as well. Also, oil prices are climbing on news of OPEC supply cuts, while Treasury note yields, up yesterday, are rising once more. Finally, in what is likely to be another volatile day, the U.S. equity futures are posting early solid increases after the President indicated optimism about a possible trade breakthrough with China.
- Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
