After The Close
The stock market started positively today, as sentiment improved concerning the imminence of a U.S. trade deal with China. President Trump tweeted earlier this morning that the United States was “very close to a BIG DEAL with China.” The Dow Jones Industrial Average was up as many as 314 points in early action while the other indices moved higher in tandem. However, the composites became quickly overbought and then tapered off, giving back a portion of the gains. The rest of the day could be characterized by choppy trading, but the market trended higher again from its mid-day lows. Still, the indices never breached their early morning apexes. All told, the Dow closed higher by 221 points, the S&P 500 rose 27 points, and the NASDAQ was up 63 points.
Moreover, market breadth was somewhat positive, as advancers outpaced decliners by a 1.9-to-1.0 ratio. Energy stocks were among the best performers of the day, while REITs were among the weakest.
In commodity news, crude oil prices rose due to improving sentiment. Meantime, U.S. Treasury bond yields increased as a move away from the safe-haven asset occurred. Too, the yield curve steepened, which usually is positive for financials as they borrow short and lend long. The VIX Volatility Index declined as demand for options protection fell.
Looking ahead, tomorrow will have a notable amount of economic data released, including retail sales and business inventories. A few companies plan to release quarterly earnings results after the bell today, but the slate is entirely bereft for tomorrow morning. Overall, we think any news concerning the U.S. trade negotiations with China will likely have a major effect on trading.
– 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
The stock market, which settled back during the first two trading days this week following some upward fireworks to begin the final month of this year, began the latest session modestly to the downside, with the losses largely focused in the Dow Jones Industrial Average. However, the moves were rather small in both directions, with the Dow staying in the minus column up until the end of the latest Federal Reserve FOMC meeting, which adjourned at 2:00 PM (EST) yesterday afternoon. The S&P 500 and the NASDAQ, meantime, each remained mostly in the plus column, albeit gingerly.
Expectations had been for some time that the Fed would leave interest rates unchanged, and that is just what it decided to do after the bank was further reassured by last Friday's surprisingly strong jobs report, in which 266,000 new positions were added. The Fed, in fact, probably will not make any changes in monetary policy through much of 2020. The bank noted in its release that "the Committee indicated that monetary policy is likely to stay where it is for a period of time." We take that to mean for the balance of 2020. The vote to keep rates unchanged was unanimous.
The market, which had been just narrowly lower earlier in the day, would firm up slightly after the release, with the S&P 500 Index and the NASDAQ, in particular, moving comfortably into the plus column. The Dow, however, remained close to dead center. That trend would continue into the close. Meantime, what could change things for the Fed would be for the trade situation with China to worsen materially in the months to come. And on that count, there seems to be no clear indication that the U.S and China will reach a trade understanding before the Sunday deadline.
The most likely outcome on that front would be a delay in the tariffs that are scheduled to be imposed by Sunday if no détente is reached by that time. As for the equity market, as noted, there was little change in the overall outlook as the trading day moved towards the latter stages, with the Dow, in and out of the green, finally ending matters with a slight buying burst into the close. In sum, the blue chip composite would finish the session ahead 30 points; the S&P 500 Index would be nine points to the good; and the NASDAQ would conclude the day ahead by 38 points.
All the key indexes would end up near session highs. Now, after a benign report on consumer prices and one day ahead of the critical release on retail spending, which will give some hint about holiday shopping, we see that the U.S. equity futures are poised to open the current session to the upside. With the Fed gathering out of the way, the most critical matter again before the market will be the approaching deadline for a trade understanding between the world's two largest economies. Our sense, there, is that no deal will be reached before Sunday, but that a delay in the tariff impositions will be agreed upon. Stay tuned.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
