After The Close
The stock market started modestly higher today, aided by some solid economic news. The Dow Jones Industrial Average climbed more than 300 points in early trading, and the S&P 500 rose almost 40 points. However, the markets moved decidedly lower after the Federal Reserve released its interest-rate decision, causing the Dow to fall by over 500 points at one time and reach a 52-week low in the process. The other indices fell in tandem and hit fresh lows, as well. Still, the final portion of trading concluded with a short rally from extremely-oversold conditions. All told, the Dow closed down 352 points, while the S&P was lower by 39 points.
Market breadth was largely negative, as decliners outpaced advancers by a 2.8-to-1.0 ratio. Interest rate-sensitive utilities and real estate stocks outperformed on the day, though only on a relative basis. On the other hand, technology issues were among the weakest performers.
The U.S. Federal Reserve raised interest rates 25 basis points earlier this afternoon. This move was widely expected. In addition, the Fed lowered its 2019 forecast for further rate hikes to two. However, the market had been pricing in an even-more-accommodative interest-rate policy, and this caused stocks to fall. Though the market momentarily rebounded when Fed Chairman Powell announced that future decision will be data dependent, it dropped in earnest once the press conference ended. Too, this news caused short-term U.S. bond yields to rise and long-term yields to fall. However, once the stock market dropped in earnest, all bond yields declined as a flight to safety occurred.
In other news, FedEx (FDX) recorded weaker-than-expected quarterly results and guidance, which resulted in a notable stock-price drop. Management attributed the lackluster performance to a global slowdown caused by “bad political choices” referring to tariffs and the highly uncertain Brexit. This hurt several transportation stocks early in the day and suggests that international economies are not as strong as projected.
Looking ahead, tomorrow has a full slate of economic news. This will include weekly initial jobless claims and the Energy Information Agency’s report on natural gas inventories. Too, the Philadelphia Fed survey for December will be released. Also, earnings will remain at the forefront for two Dow components, as both Walgreens Boots (WBA – Free Walgreens Stock Report) and NIKE (NKE – Free NIKE Stock Report) are slated to report quarterly results.
- 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 Dow Jones Industrial Average, off a combined one thousand points this past Friday and Monday, began the session yesterday nicely to the upside, quickly rebounding to show a gain north of 300 points, climbing back to just shy of 23,930. The other averages also acquitted themselves well, although lagging somewhat behind the Dow. Nice recoveries in Johnson & Johnson (JNJ – Free Johnson & Johnson Stock Report) and The Boeing Company (BA – Free Boeing Stock Report) led the way during the morning. Some earlier struggling technology names also did well, as Wall Street tried to end a difficult year with some optimism going forward.
The gains came even as the President again threatened to shut down parts of the government later this week if Congress does not approve $5 billion in federal funding to build a wall along our southern border. However, a key spokesperson for the Administration suggested that there were other ways to secure the funding. Our sense is that a shutdown is unlikely, but not out of the question. Meantime, the latest setbacks have put the Dow, the S&P 500, and the NASDAQ in correction territory, with each having sustained a 10% decline. The small-cap Russell 2000 has entered a bear market with a peak-to-trough drop of 20%.
In addition to concerns about the back and forth in Washington, traders also had an eye on the doings at the Federal Reserve, where the nation's central bank is holding its latest FOMC meeting. There, an increase in interest rates is widely forecast to be announced later today. Worries about rising rates have been a focal point of the market, especially as recent signals of a slowdown in economic growth is under way. Here, as well, the President has had much to say, taking the Fed to task over the prospect of yet another increase in borrowing costs.
Meanwhile, on the economic front, the government reported that both housing starts and the more forward-looking building permits had risen in November, putting each segment of the housing industry at solid recovery levels. In all, this was the highest level of starts since August. Those encouraging metrics, along with some bargain hunting, helped to keep the stock market pressing forward as morning turned into afternoon. All told, the Dow was still up about 300 points as the afternoon began, there by solidifying its place as the top performing index, at least for one day.
The market then started to weaken as we moved more deeply into the afternoon, so that as we entered the final two hours of the trading day, that 300-point rebound in the Dow had been halved, bringing the averages back down to their brief late-morning lows. Earlier, the Dow and the other averages had been quick to rebound anew, with the major indexes all sprinting to their session highs just after noon. This time, though, after teasing for a few minutes with the suggestion of a half-hearted rebound, the stock market pulled back one more time. In this case, the downturn pushed the S&P 500 into the red.
The market then would weaken further as we moved inside the trading day's final hour, with all of the major averages going into the red by for a time. It seemed as though the market was in a holding pattern awaiting the Fed's rate decision and accompanying monetary statement later this afternoon. Even so, there would be some late-firming as the session moved toward its conclusion, with all of the key indexes moving back into the plus column, led by the Dow and the NASDAQ, with modest gains of 83 and 30 points, respectively.
Looking ahead to a new day that will be headlined by the end of the FOMC meeting, the central bank's interest-rate decision, and its accompanying monetary statement, we see that the major indexes were trading in a downward fashion in Asia overnight. In Europe, meantime, the bourses are showing early gains. Also, oil prices off sharply yesterday, are now moving slightly higher, while Treasury note yields, which also fell in the latest session are flat. Finally, U.S. equity futures are suggesting a nicely higher start when the new trading day gets under way and ahead of the Fed rate decision.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
