After The Close
Stock trading started off strong this morning, as the broader indices rallied from a two-day selloff that brought the Dow Jones Industrial Average down more than 1,000 points. In all, the Dow rose 334 points in early market action on good economic news, and the S&P 500 gained 28 points. However, the market started moving up and down, until it decidedly broke lower in the latter part of the day. The S&P 500 made a fresh 52-week low, while the Dow traded just above that level. Still, stocks rebounded a bit in the final portion of the session. All told, the Dow finished up about 83 points, while the S&P 500 broke even.
Additionally, market breadth was narrow, as decliners and advancers were largely even on the day. Real estate stocks were among the best performers, while energy issues were among the weakest.
In other news, oil prices suffered a notable loss today, reaching new 52-week lows, as concerns about market oversupply and fears about slowing global growth caused an 8% drop in price. In addition, U.S. bond yields tumbled, as a flight to safety occurred. Meantime, the VIX Volatility Index rose, as expectations for future price instability climbed.
On the economic front, new residential housing starts rose to 1.26 million in November, exceeding forecasts and probably showing that homebuilders think that a housing slowdown will be temporary. Too, building permits were up to 1.328 million, though this was largely due to increased multifamily homes. These figures suggest that building construction may pick up, especially in the South. Also, the weaker numbers in the West were probably affected by the wildfires.
Looking ahead, the Fed is slated to announce an interest-rate adjustment tomorrow, and a hike of 25 basis points is expected. However, the focus will likely be on the accompanying statement, which the market will use to forecast if the Fed will become less restrictive in 2019, compared to current projections. Also, the Energy Information Administration will release its weekly status report on crude oil inventories, and November existing-home sales are due out. In earnings news, quarterly results at General Mills (GIS) and Paychex (PAYX) are slated for release.
- 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
Following a very difficult week for stocks during the most recent five-day span, which had culminated in a complete meltdown on Friday, when the Dow Jones Industrial Average lost almost 500 points, equities began the new week on the downside once more. Worries about the state of the global economy, concerns about our own business expansion, and some uneasiness ahead of this week's Federal Reserve Board FOMC meeting all combined to deal another blow to the recently embattled bulls.
In all, the three major large-cap indexes, already in correction territory after Friday's severe setback, fell further in early morning action, with the Dow pulling back by another 315 points in early action. The NASDAQ shed just over 100 points, at the same time. That dual decline would mark the low point for the morning. Thereafter, the market, as has often been its pattern, steadied and started a nice recovery, so that as the noon hour arrived in New York, the Dow's loss had nearly evaporated, while the NASDAQ had gone nicely positive.
At that time, it looked as though a 180-degree reversal would take place, with the major averages going positive. In fact, such a clear reversal had taken place on a number of occasions in recent weeks. But that wasn't to happen this time, as stocks would begin a second retreat that would take the averages back down near their session lows in minutes. They then would fall through the day's lows as traders returned from lunch, so that as we neared the final two trading hours, the Dow had fallen to a loss of 360 points and the NASDAQ was off 108 points.
As to new influences on the day, in addition to the Fed, there was the economy, where a report issued early in the morning showed that manufacturing in New York State had weakened again, while confidence in the housing area also had softened. These increasing worries about the economy comes as the Fed seems likely to raise interest rates for a fourth time this year. That decision will be handed down tomorrow afternoon. This closely watched meeting will be held amid criticism by the President that the Fed is going too far on rates.
The President's comments suggested that with slower growth abroad and low inflation the Fed should not be hiking rates at this time. That said, the lead bank is expected to move ahead anyway on the monetary front. The bigger issue is just how aggressive it will be in 2019. That is the unknown for now. Meantime, big losers on the day were the health care stocks after a Federal judge ruled on Friday that the individual mandate of the Affordable Care Act was unconstitutional. That ruling is almost certain to be appealed.
The market then would remain under pressure as we moved more deeply into the afternoon, with the Dow falling by just over 375 points before starting another recovery attempt. But that comeback would prove difficult and would ultimately be unsuccessful. Returning to the health care stocks, two big contributors to the latest selloff were Dow components UnitedHealth Group (UNH –Free UnitedHealth Group Stock Report) and Johnson & Johnson (JNJ – Free Johnson & Johnson Stock Report). Each issue was down by well over $5.00 as we headed toward the day's homestretch.
Things then would go from bad to worse for the bulls, with the Dow falling through the 400, 500, and finally the 600-point levels, before edging back somewhat during the final minutes of trading. When all the numbers were in, the Dow had fallen by 508 points, making it just over 1,000 points for the last two sessions. The NASDAQ would lose 157 points and the S&P 500 Index would shed 54 points. As noted, all three large-cap indexes are now in correction territory, having eclipsed the 10% mark from peak to trough this year.
Now, a new day begins and ahead of the start of the latest Fed meeting, the leading indexes were trading with losses in Asia overnight. In Europe, meantime, the major bourses are mixed at this hour. Closer to home, yields on U.S. Treasury notes are down sharply, while U.S. equities are suggesting a notably higher opening when trading resumes shortly. As for the Fed, our thinking is that despite the latest pressures, it will opt to raise rates yet one more time. Stay tuned.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
