After The Close
Stocks fell sharply to open the week as investors gave greater weight to indications of slower economic growth and the effects of unresolved trade tensions with China.
On the day, the Dow Jones Industrial Average tumbled 508 points; the NASDAQ slumped 157 points; and the S&P 500 declined 54 points. Market breadth affirmed the bearish tone, as decliners widely outpaced advancing issues.
Following a selloff on Friday, some on Wall Street thought a bit of a snap-back rally might be due on Monday, but those hopes were dashed not long after trading began.
Heavy speculation about what the Federal Reserve’s decision on interest rates will be this week contributed to a cautious tone toward stocks. The Fed begins a two-day policy meeting tomorrow that is still expected to end on Wednesday with a quarter-point hike in the targeted fed funds rate. But there has been some pushback against that once-thought-settled policy move, notably even from the White House.
Now, the thinking seems to be that, while the Fed may raise rates on Wednesday, it will signal a more dovish tone toward monetary policy in the coming year.
Investors already appear to be assuming as much, although it might help sentiment if Federal Reserve Chairman Powell were to spell out that interest rates will be on hold as 2019 gets under way.
The morning’s economic data affirmed that business conditions are easing, at least in the New York region. The New York Federal Reserve’s Empire State Manufacturing index fell more than expected for the month of November. Trade tensions with China, the strong dollar, and a weaker outlook contributed to the decline.
Tuesday and Wednesday will bring data on the housing market, which has already slowed, partly owing to higher mortgage rates.
As for stocks, today’s session showed a lack of conviction on the part of buyers. Bargain hunters have stepped in at times during the market’s correction, but renewed bouts of volatility have kept the major averages from building any momentum. The uncertainty on interest rates, the economy, and international trade policies is fueling the bears and keeping the bulls contained.
On the plus side, the Federal Reserve may soon indicate a neutral tone toward interest rates and the economy should still grow sufficiently to allow corporate profits to advance moderately. Progress toward a trade agreement with China looks to be moving slowly, though.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The U.S. market, meantime, started lower, falling about 200 points in the Dow Jones Industrial Average during the first few minutes of trading. Things then would stabilize for a time, before the market began a painful further descent shortly before the noon hour in New York. The averages fell further into and through the lunch hour and subsequently into the mid-afternoon. In all, the Dow had tumbled by more than 500 points as we neared the final hour of trading. The tech-driven NASDAQ's loss, meantime, surpassed 150 points for a time on those international growth fears.
As for growth, although there are fears in Europe and Asia, figures issued before the stock market opened here indicated that our own economy was performing adequately down the home stretch of 2018, in particular on the industrial front. There, for example, a report issued before the market opened showed that industrial production had increased by 0.6% in November. That was the best showing since August and followed a scant 0.1% uptick in September and a 0.2% drop in October. For the past year, such output is up 3.9%, a credible increase. Also, the government reported that capacity use at the nation's factories had gained last month.
In contrast, industrial production in China increased by 5.4% in November on a year-over-year basis. That was not all that far above our pace, but for a much smaller economy. That was the slowest pace in some three years. Retail sales also slowed its rate of gain. Such ill winds out of China could make that country more willing to concede things on the trade front. The latest setback in our stock market, meantime, came after an initial surge during the week on hopes that a U.S,-China accord could be worked out that would lessen the possibility of a trade war that no one wins in the end.
Returning to our market, while the averages were all lower and many more stocks fell than gained, there were some high-profile individual stories that bear noting. One such was Dow component Johnson & Johnson (JNJ – Free J&J Stock Report). That storied health care giant and Dow-30 component lost more than 10% of its value on the day, falling sharply after a report surfaced that the pharmaceuticals concern had known about asbestos tainting its talcum powder for decades. That issue was the biggest Dow loser on the day. Other stocks on the Dow seeing intense selling included Cisco Systems (CSCO – Free Cisco Stock Report) and Walgreens Boots Alliance (WBA – Free Walgreens Stock Report).
The market would then limp into the close, with few traders wanting to establish positions going into the weekend that could bring more uncertainty on the global front along with a further exacerbating of the already tense political drama in Washington. As the final bell sounded, the market had settled in near the day's lows on those off-shore economic worries. In all, the Dow would give back 497 points, heaving it just 100 points above the 24,000 level, while the S&P 500 Index would drop 51 points. The NASDAQ, meanwhile would surrender 160 points, thereby slightly surpassing the percentage decline on the Dow.
Now a new week begins, and one that will be dominated by news from the Federal Reserve, as the central bank will be meeting this week to decide on interest-rate policy, with an increase still likely, but a tad less so than appeared to be the case several weeks ago. As to the day ahead, shares were higher in Asia overnight, while in Europe, the major bourses are trading lower at this hour. In other markets, oil prices are up, but Treasury note yields are slightly lower. Finally, ahead of trading here, our equity futures are poised for a lower opening.
