After The Close
Mid-Day Update - 12:15 PM EST
Before The Bell
The stock market, clearly no stranger to record highs this year, commenced the trading day yesterday with yet more gains, and as we approached the middle of the morning, the averages were all nicely higher. In fact, additional peaks seemed in the offing. To wit, as the morning progressed, the Dow Jones Industrial Average, once up better than 80 points, and the S&P 500, ahead by some six points, seemed nicely positioned to head strongly higher as the day progressed. After all, tax reform still appeared on the way (although there were some lingering worries to be resolved) and the economic variables were mostly favorable.
But it was not to be, as some modest profit taking would set in as the morning wore on. At first, the pullback was incidental and involved whittling away at earlier gains. In all, as we hit the noon hour in New York, the averages still were mostly higher, albeit well off of their earlier peaks. Then, after the market had dipped slightly into the red, in further profit taking, the buyers returned briefly, and as the afternoon commenced, small gains could again be seen. However, once we moved into the afternoon, the losses increased, so that as we entered the home stretch, the averages, especially the smaller-cap composites, were solidly lower.
As to influences on the day, the government reported that retail sales had gained a notable 0.8% in November, a strong showing that likely augurs well for a good holiday season performance. In addition to the headline increase (which was more than double the 0.3% rise forecast for the month), the report noted that retail sales, after backing out the auto and auto parts component, gained a strong 1.0%. Add in benign reports issued the prior two days on producer and consumer price data and a supportive reading on machine tool orders, we think expectations of 3% final-period GDP growth are reasonable.
Then, as the session moved further along, the market started to falter. And this downturn deepened as we moved toward the close. Profit taking explains some of the selloff, which was more moderate than severe, and, as noted, worries were still around about the tax legislation, which must still pass the House and the Senate. What transpired late in the say was that two GOP Senators started to offer up concerns about the proposals. Specifically, Senators Mike Lee of Utah and Marco Rubio of Florida expressed worries about aspects of the bill, but not real opposition to passage.
Regarding the bill, as it stands now, the corporate rate is expected to fall from 35% to 21%. Such a reduction is the focal point of the legislative effort. In other news, entertainment giant Walt Disney (DIS – Free Disney Stock Report) said yesterday that it was proposing to pay $52.4 billion in stock to buy the movie studio and other assets of Twenty-First Century Fox (FOXA). Disney, a component of the Dow, initially jumped more than two points on this news, but then gave that gain back. Subsequently, though, the buyers returned, and the issue closed almost three points higher. Fox shares, meantime, jumped more than 6% on the day.
In all, this seesaw patter ended with the Dow off 77 points, the S&P 500 Index down 11 points; and the NASDAQ losing 19 points. The losses were proportionately greater on the S&P Mid-Cap 400 and the small-cap Russell 2000, with the latter lower by more than a percentage point. Overall, it seemed to be a tax bill-related selloff more than anything else, as the retail showing was excellent and the number of weekly jobless claims had dipped to just 225,000. In all, though, even with yesterday's losses, the market remains higher for the week thus far.
Looking out to the final trading day of the week, we see that stocks were lower in Asia overnight on U.S. tax bill concerns. In Europe, meantime, the key bourses are trading down, as well, at this hour. Also, oil is higher and interest rates, which eased back somewhat yesterday, are currently showing small gains. Also, U.S. futures are now indicating a higher open this morning, in spite of the lingering tax issues. Finally, in news upcoming this morning, the U.S. government will be releasing data on industrial production and factory utilization. But the big influence on the day's action still figures to be the progress, or lack thereof, on the tax reform effort on Capitol Hill.
But it was not to be, as some modest profit taking would set in as the morning wore on. At first, the pullback was incidental and involved whittling away at earlier gains. In all, as we hit the noon hour in New York, the averages still were mostly higher, albeit well off of their earlier peaks. Then, after the market had dipped slightly into the red, in further profit taking, the buyers returned briefly, and as the afternoon commenced, small gains could again be seen. However, once we moved into the afternoon, the losses increased, so that as we entered the home stretch, the averages, especially the smaller-cap composites, were solidly lower.
As to influences on the day, the government reported that retail sales had gained a notable 0.8% in November, a strong showing that likely augurs well for a good holiday season performance. In addition to the headline increase (which was more than double the 0.3% rise forecast for the month), the report noted that retail sales, after backing out the auto and auto parts component, gained a strong 1.0%. Add in benign reports issued the prior two days on producer and consumer price data and a supportive reading on machine tool orders, we think expectations of 3% final-period GDP growth are reasonable.
Then, as the session moved further along, the market started to falter. And this downturn deepened as we moved toward the close. Profit taking explains some of the selloff, which was more moderate than severe, and, as noted, worries were still around about the tax legislation, which must still pass the House and the Senate. What transpired late in the say was that two GOP Senators started to offer up concerns about the proposals. Specifically, Senators Mike Lee of Utah and Marco Rubio of Florida expressed worries about aspects of the bill, but not real opposition to passage.
Regarding the bill, as it stands now, the corporate rate is expected to fall from 35% to 21%. Such a reduction is the focal point of the legislative effort. In other news, entertainment giant Walt Disney (DIS – Free Disney Stock Report) said yesterday that it was proposing to pay $52.4 billion in stock to buy the movie studio and other assets of Twenty-First Century Fox (FOXA). Disney, a component of the Dow, initially jumped more than two points on this news, but then gave that gain back. Subsequently, though, the buyers returned, and the issue closed almost three points higher. Fox shares, meantime, jumped more than 6% on the day.
In all, this seesaw patter ended with the Dow off 77 points, the S&P 500 Index down 11 points; and the NASDAQ losing 19 points. The losses were proportionately greater on the S&P Mid-Cap 400 and the small-cap Russell 2000, with the latter lower by more than a percentage point. Overall, it seemed to be a tax bill-related selloff more than anything else, as the retail showing was excellent and the number of weekly jobless claims had dipped to just 225,000. In all, though, even with yesterday's losses, the market remains higher for the week thus far.
Looking out to the final trading day of the week, we see that stocks were lower in Asia overnight on U.S. tax bill concerns. In Europe, meantime, the key bourses are trading down, as well, at this hour. Also, oil is higher and interest rates, which eased back somewhat yesterday, are currently showing small gains. Also, U.S. futures are now indicating a higher open this morning, in spite of the lingering tax issues. Finally, in news upcoming this morning, the U.S. government will be releasing data on industrial production and factory utilization. But the big influence on the day's action still figures to be the progress, or lack thereof, on the tax reform effort on Capitol Hill.
Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
