After The Close
The equity market got off to a solid start this morning, but lost ground as the session progressed. At the close of trading, the Dow Jones Industrial Average was down 77 points; the broader S&P 500 Index was off 11 points; and the NASDAQ was lower by 19 points. Market breadth was negative, as losers outpaced winners by a wide margin on the NYSE. Most of the major stock market groups ended up in negative territory, with notable losses in the healthcare and basic materials issues. Some consumer names and the utility issues managed to display a degree of relative strength.
It was a busy day for economic news. Specifically, retail sales advanced 0.8% during the month of November, easily surpassing expectations. Further, initial jobless claims dipped to 225,000 for the week of December 9th, where analysts had been looking for a less favorable showing. Finally, business inventories slipped 0.1% during the month of October. Tomorrow, the Empire Manufacturing Survey will be released, as well as the latest monthly industrial production numbers.
Meanwhile, not many corporations issued their financial results over the past 24 hours. However, after the market closed today, Oracle (ORCL) and Adobe Systems (ADBE) weighed in with their results. Looking ahead, as the fourth quarter comes to a close, a small handful of corporations will likely provide updated full-year guidance, and that may be informative.
Technically, the stock market has staged a sizable advance this year. Assuming the Trump Administration’s tax plan gains acceptance, we look for a respectable finish to 2017. However, a major holiday rally may not materialize, given the progress already achieved.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EST
The major U.S. equity indexes are putting in a mixed performance today, but the Dow Industrial Average did set another intra-day record high. Investors have a lot to digest right now, including Walt Disney’s (DIS – Free Disney Stock Report) agreement to purchase of a number of Twenty-First Century Fox’s (FOXA) entertainment assets, signs of progress on tax cuts on Capitol Hill, the Federal Reserve doing what most expected with regard to monetary policy tomorrow morning and signaling that they will probably take a measured approach to monetary tightening next year, and some very encouraging data on retail sales.
Thus, as we inch closer to the midday hour on the East Coast, the aforementioned Dow, the NASDAQ, and the S&P 500 Index are bouncing around the neutral line, looking for some sense of direction. The same can be said for the small- and mid-cap sectors, which are little changed at this time. In general, it is a mixed performance, as highlighted by the razor thin margin between advancing than declining issues on both the Big Board and the NASDAQ, and a roughly even split between up and down arrows among the 10 major equity groups.
As noted, we did get some noteworthy news from the corporate world this morning. Specifically, entertainment giant Walt Disney agreed to buy Twenty-First Century Fox’s movie studio, network Nat Geo, and Asian pay-TV operator Star TV for $52.4 billion in stock. Both shares of Disney and Fox are up modestly on the deal, which was rumored to be in the works for several weeks.
Meantime, the investment community received another very encouraging report on retail sales this morning. Specifically, the Commerce Department reported that retail sales expanded by 0.8% in November, far exceeding the consensus expectation of a 0.3% gain. The data, which included the Black Friday and Cyber Monday shopping frenzy, were an encouraging sign for the retailers during the ongoing all-important holiday shopping season. Not surprisingly the consumer discretionary stocks, along with the technology names, are trading in the black.
Traders also are encouraged by reports that the two chambers of Congress appear to have reconciled the majority of the differences in their tax reform plans and are close to voting on the unified plan and getting it to President Trump’s desk before Christmas and before newly elected Alabama Democratic Senator Doug Jones is sworn into office. Our sense is that if the tax cuts, which include lowering the corporate tax rate from 35% to 21% (a maneuver that would likely be cheered by Corporate America and Wall Street), are signed into law next week, it may fuel a Santa Claus rally for an already surging U.S. equity market.
Looking ahead to the second half of the trading day, it is too hard to call which way the major U.S. averages will finish today’s session. However, most of the aforementioned news from Washington D.C. is fairly positive, so we would not bet against the bulls eventually making a move in the game of tug-of-war we are seeing on Wall Street today. 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.
Before The Bell
Another day, another series of records for Wall Street. To wit, after soaring to records on Tuesday, both the Dow Jones Industrial Average and the more broadly configured S&P 500 Index jumped to all-time highs yet again yesterday morning, with the former fashioning better than a 100-point gain by mid-morning. The percentage rise on the blue chip composite was almost twice what it was on the S&P 500, and also modestly more than the increase on the tech-laden NASDAQ. Importantly, both the S&P Mid-Cap 400 and the small-cap Russell 2000 posted nice advances. Each had fallen on Tuesday.
All of this took place as Republicans in Congress were striving to hammer out a compromise deal that could gain passage in both houses and be ready for presentation to the President for his signing by yearend. At the same time, the Federal Reserve was putting the finishing touches on its latest FOMC meeting, where, to the surprise of virtually no one, the lead bank voted to raise the federal funds rate by 0.25%. The equity market's strong start also followed Tuesday night's upset win by Democratic Senatorial candidate Doug Jones in Alabama.
It should be noted, meanwhile, that Mr. Jones is unlikely to be seated until early January, or after the Senate figures to vote on the tax cut package. So, his victory probably will not change to outcome of that event. However, the big event for yesterday was the FOMC meeting. It was not the vote on rates that was in play, but rather some sense as to where the Fed stands with regard to 2018. Our thinking is that the lead bank will stay wedded to a slow and careful tightening agenda, resulting in no more than three rate increases next year, and perhaps as few as two.
Meanwhile, the market continued to run still higher as the morning wound down, with the Dow's advance topping the 24,600 mark by a solid margin, as the day's gain soared above 160 points for a spell. In news outside of taxes, elections, and the Fed, the Labor Department reported early in the day that the Consumer Price Index had risen by 0.4% in November. However, the increase in prices was much more muted when excluded the volatile food and energy components, to get the so-called core CPI. That rate was up just 0.1% last month. So, inflationary pressures are not out there just yet.
Then, as per usual before a Fed meeting, some doubts crept in and the one-time 160-point Dow advance was about halved. But stocks firmed anew as we neared the 2:00 PM hour. And once the confirming statement about a rate hike was issued, stocks climbed anew. The indications from the Fed, meantime, seemed benign enough, so that we would not expect a marked change in direction under the new Fed Chair, most likely the current nominee, Jerome Powell. Also helping the mood on Wall Street was news that the Republican leadership in the House and Senate had agreed on a joint tax cut package.
We would expect a vote next week and likely passage. The finished bill, which might well include a slight increase in the proposed corporate tax rate from 20% to 21%, would then figure to be approved by the Republican-controlled House and Senate. If that is, indeed the case, that bill would go to the White House for the President’s signature. All of this clearly helped the market press ahead yesterday afternoon. That strength would then persist to near the close when some selling trimmed the gains somewhat, causing the Dow to end the day up by 81 point, while the S&P 500 eased by a point.
Looking ahead to the new day, now, we see that stocks began the day with losses in Asia, while in Europe so far this morning, the leading bourses are trending lower, as well, as the Continent awaits the pending ECB monetary decision. Also, interest rates, which fell rather sharply after the FOMC meeting concluded, are now edging higher. Finally, U.S. equity futures are showing early gains this morning, boosted by the news that Walt Disney (DIS - Free Disney Stock Report) will be paying $52 billion for entertainment assets of Twenty-First Century Fox (FOXA).
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
