After The Close
The stock market started positively today, as sentiment improved concerning Phase 1 of a trade deal between China and the United States. The deal will reduce the tariff rate on around $120 billion in goods from China, avoid additional hikes, and is now slated to be signed the first week of January, though this is subject to change. Additionally, homebuilder confidence rose to the highest level in 20 years. The Dow Jones Industrial Average climbed by as many as 202 points in the first few moments of the session, and the other indices followed in tandem. During the early portion of the session, the three major indices reached all-time highs. Then, the composites bounced a little off their new apexes but did not give all that much back. The indices held close to the top throughout most of the day, which suggests a phase of consolidation near those levels. Overall, the Dow closed higher by 101 points, the S&P 500 rose 23 points, and the NASDAQ was up 79 points.
Moreover, market breadth was very positive, as advancers outpaced decliners by a 2.4-to-1.0 ratio. Energy stocks were among the best performers on the day, aided by a sharp rise in the related commodities. However, industrial equities were among the weakest, though only on a relative basis.
In commodity news, oil prices rose today as sentiment improved for global trade. Meantime, U.S. Treasury bond yields rose, and the yield curve steepened a bit, which usually is positive for financials earnings. The VIX Volatility Index was lower today, as demand for options protection declined.
Looking ahead, tomorrow will have plenty of economic news. This list includes housing starts and building permits for November and Industrial production is also on the docket. Meantime, a few large companies are slated to report quarterly results. Also, we think that trading tomorrow will be impacted by any developments in the U.S. trade negotiations with China.
– 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 U.S. equity market once again delivered record-setting results last week, with the major equity averages hitting all-time highs along the way. Overall, though, with the exception of last Thursday’s showing, trading was rather contained, and the path to new highs was slow to develop. Investors were unwilling to make any major moves after following Friday’s sharp rise on a strong report from the Labor Department and ahead of the Federal Reserve’s final monetary policy meeting in 2019. But after the market got supportive news from the central bank on Wednesday afternoon (more below) and some positive commentary from President Trump on trade on Thursday morning, the major averages saw their best gains during the week’s penultimate trading session. For the five-day stretch, the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index advanced 0.4%, 0.9%, and 0.7%, respectively. The Dow 30 was held back a bit from some disappointing news from Home Depot (HD – Free Home Depot Stock Report) and Boeing (BA – Free Boeing Stock Report) last week.
On Friday, the aforementioned averages traded in a tight band around the neutral line throughout the session before each finished the nondescript day with nominal gains. Investors took a bit of a breather after Thursday’s sharp move higher on positive trade commentary. For the session, the spread between advancing and declining issues was razor thin on both the New York Stock Exchange and the NASDAQ. At the closing bell, there were slightly more winners on the Big Board, while the reverse held true on the NASDAQ. Among the 10 major equity groups, all of the sectors were none too far removed from break even, save for a nice performance from the utilities stocks. In general, there is little volatility in the market these days, with the CBOE Volatility Index (or VIX) finishing the week at just over 12 after a more than 12% decline on Friday.
For the most, all of the news so far in December has proven supportive for the U.S. stock market. The biggest catalyst was the latest report from the Department of Labor showing that nonfarm payrolls increased by a surprisingly strong 266,000 in November, topping the general consensus calling for 180,000 new jobs. The jobs report was a Goldilocks report for Wall Street, as it showed that the U.S. economy is doing well, but the modest gains in hourly wages did not stoke any inflation concerns. That, combined with commentary from the Federal Reserve last week that it doesn’t anticipate tightening the monetary reins in the foreseeable future, was a good cocktail for investors. Then on Thursday, commentary from President Trump that he was very close to signing a partial trade deal with China, and that he would hold off on another round of tariffs that was scheduled to go into effect yesterday, was well received by Wall Street and was the main reason new intra-day trading records were established last week. News that the House of Representatives will put the USMCA trade deal between the U.S., Mexico, and Canada up for vote and likely ratification also emboldened investors.
Turning to the week at hand, the focus of the investment community will remain on the trade negotiations and the U.S. business beat. On the latter front, the attention will turn to the improving U.S. housing market, which has been helped in recent months by the more-accommodative monetary policy from the Federal Reserve. We will get data on housing starts and existing home sales this week, along with this morning’s report on homebuilders’ sentiment. The housing data headline starts a busy week that will also include reports on industrial production, the leading indicators, and personal income and spending. Investors will also get the final revision on third-quarter GDP on Friday. The news from the earnings beat will once again be light, save for the latest quarterly results from NIKE (NKE – Free NIKE Stock Report) after Thursday’s closing bell.
With less than an hour to go before the commencement of the new trading week stateside, the futures are pointing to a higher opening for the U.S. stock market. So far overseas, the trading has been mostly positive, with the major European bourses sporting healthy gains as trading moves into the back half of the session on the Continent. Investors should note that Boeing stock is expected to cut the Dow 30 gain at the opening bell by 50 points after some more dour news on the grounded 737 aircraft surfaced over the weekend. 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.
