After the Close
The U.S. stock market moved higher early this morning, but gradually weakened as the day progressed. At the close of trading, the Dow Jones Industrial Average was down nine points; the S&P 500 Index was off four points, and the NASDAQ was lower by 20 points. Market breadth also showed a divided session, as advancers and decliners were about evenly matched on the NYSE. From a sector perspective, the energy, consumer noncyclical, and utility shares managed to make positive strides. Meanwhile, the technology and basic materials issues moved notably lower.
Meanwhile, there were a few economic reports issued this morning that are likely worth mentioning. Specifically, housing starts slipped to 1.09 million units, annualized, for the month of November. Analysts had been looking for a somewhat better showing. Furthermore, building permits (often seen as forward looking indicator) came in at 1.2 million units for the month, which was a bit lighter than had been anticipated. It should be noted that housing starts were unusually strong in October, and that makes comparisons somewhat challenging. Meanwhile, the housing market is important to watch, given the role that this key area plays in the broader economy.
Finally, in the corporate sector, a couple of widely held technology companies posted their reports over the past 24 hours. Specifically, shares of Oracle (ORCL) moved lower, after the software giant offered uninspiring guidance. Shares of Adobe Systems (ADBE) also eased on concerns about the outlook. However, Jabil Circuit (JBL) stock surged after that company delivered a solid report.
Technically, equities have put in a solid performance for the past several weeks, so a slight pause here is to be expected. The rally may well continue through the end of the year, as sentiment tends to remain upbeat around the holidays. From there, it remains to be seen if the bulls can stay in control of the market as we move into 2017. – 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 - 11:50 AM EST
The bulls are at it again this morning, pushing several of the major U.S. indexes, which were already at historic post-election highs, upward. Today’s buying has the Dow Jones Industrial Average on pace for its sixth-consecutive winning five-day stretch. This week, the market has been able to shake off a 25-basis-point interest-rate hike on Wednesday, as well as sentiment that the Federal Reserve may be embarking on a period of aggressive monetary tightening. The consensus among economists is that the central bank may possibly raise short-term rates three or more times next year.
Much of the headlines over the last five weeks is that the market is up sharply on thoughts that the incoming Trump Administration will push for business-friendly policies, including significant tax cuts and roll backs in regulations. Pundits believe that such policies would be good news for both Corporate America and Wall Street—and thus the spate of buying we have seen since the election. However, a closer look also would reveal that the latest buying is on more than just hope. A slew of positive economic data over the last few months, some of which were a bit surprising to market participants, is giving investors the confidence to put more funds into U.S. equities. That said…
The news from the business beat was not great this morning. Specifically, the Commerce Department reported that housing starts and building permits fell 18.7% and 4.7%, respectively, on sequential bases in November. While those figures may look troublesome at first blush, investors should note that both metrics were up sharply in October, with housing starts hitting a nine-year high. When averaging out the last few months, the figures are quite respectable, comfortably above an annualized rate of one million units. It should also be noted that The National Association of Home Builders/Wells Fargo Housing market Index rose to 70 in December, the highest level since July 2005, and the biggest one-month jump in more than 20 years. (The line between positive and negative sentiment is 50.) Thus, our sense is that housing is still on the upturn and likely a big reason why the stock market quickly brushed off today’s report on homebuilding.
From a sector perspective, most of the major equity groups are in positive territory, though none is too far removed from the neutral line. There is modest leadership coming from the energy and consumer staples stocks. Like the consumer noncyclical stocks, the utilities, which have struggled a bit recently on interest-rate fears, are getting a slight boost this morning from a modest pullback in the yield on the benchmark 10-year Treasury note. Conversely, we are seeing slight profit taking in the basic materials, technology, and telecommunications categories.
Looking ahead to the second half of today’s session, we don’t see anything right now that will keep the bulls from making it another winning week on Wall Street. That said, it is the third Friday of the month, which means that options will be expiring today. This has the potential to provide some late-day volatility, but that too may not be enough to offset what appears to be the combination of post-election and Santa Claus rallies on Wall Street.
Meantime, investors should note that while everything is looking splendid on the Street these days, there are a few issues to consider over the final two trading weeks of this year. Historically, during the period between the expiration of stock options and the end of the year, the Santa Claus rally tends to lose some steam. It will also be interesting to see if the market has as much trouble with a Dow 20,000 as it did with a Dow 10,000, as there was a lot of resistance when the index of 30 bellwether companies last hit that latter level. The market bounced above and retreated below 10,000 a total of 67 times in the period after hitting it, before leaving the mark in the rearview mirror. – 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
The historic post-election stock market rally, which had taken a much-needed breather on Wednesday in the wake of the Federal Reserve's quarter of a point increase in the federal funds rate target and strong suggestion that more was on the way, was back on again yesterday--and in full force--at least early in the day.
This rally came one day after the market had taken a notable breather following the Fed's move. Meanwhile, the Federal Reserve's decision to hike interest rates, and the central bank's seeming disposition to raise rates still further in 2017 was still much in the news yesterday, although such tidings did not appear to unsettle investors. On point, taking note of this likely intention, the yield on the benchmark 10-year Treasury note, a critical factor in setting home mortgage rates, climbed further early yesterday, surpassing 2.60% at one point, before backing off to just below that level at mid-session. Such rates could soon become competition for equities.
Still, stocks soared anew, with the Dow Jones Industrial Average soaring to a gain north of 150 points in late morning, bringing that composite up just past 19,950. At the time, it seemed as though a push up to and perhaps past 20,000 was in the immediate offing. The other indexes were stronger, too, as were individual equities, as the advance-decline ratios on both the Big Board and the NASDAQ were favorable. Interestingly, though, more of the 10 major equity groups were lower at mid-session than higher, led down by the basic materials group.
Then, as the afternoon wore on, some profit taking set in and the better-than-150-point gain in the Dow was reduced very quickly to fewer than 50 points, while the NASDAQ, once ahead nearly 50 points, saw its advance more than halved, as well. The market then steadied into the latter part of the afternoon, with the Dow's gain generally holding in the 50- to 80-point range. However, the advance-decline ratio narrowed somewhat down the stretch, although the groups gaining in price seemed to catch up with those losing ground, with the lone area of notable weakness continuing to be the basic materials sector.
The market then attempted to make a stand very late in the session and to break out of that narrow upside range, but alas, it remained range-bound. At the close, the Dow was ahead by 60 points; the S&P 500 Index was better by nine points; and the NASDAQ had held onto 20 points of its earlier strong advance. The small- and mid-cap indexes, too, were nicely higher in a solid comeback rally following the equity market's moderate setback on Wednesday.
Looking out at a new day now, we see that stocks were generally higher in Asia overnight, while they are now creeping a bit higher in Europe thus far this morning. Our futures, meantime, are up somewhat in early dealings, presaging a higher open to the new trading day. Meantime, in individual names, shares of industrial giant Honeywell (HON) are taking a pounding in the pre-market on disappointing earnings news. Honeywell shares had been among the winners on the exchange this year. As to yields, the 10-year Treasury note's yield is off slightly at this hour.
Finally, in data released just moments ago, the Commerce Department reported an 18.7% plunge in housing starts in November, a larger setback than forecast. This latest result comes one month after starts had jumped up strongly. Neither bond yields nor the futures changed much on this news, and a higher market open still seems ahead for this morning. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
