After the Close
The U.S. equity market got off to a constructive start this morning, pulled back in the afternoon, before ending the day on a mixed note. At the close of trading, the Dow Jones Industrial Average was down about 22 points, while the broader S&P 500 Index was ahead nominally, and the NASDAQ was higher by five points. Market breadth showed a largely divided session, as advancers were just slightly ahead of decliners on the NYSE. From a sector perspective, the energy and basic materials issues made positive strides, as the price of crude oil headed higher. Of note, the world’s most widely traded commodity is now above the $50-a-barrel mark, after starting out the year in the $30 range. In contrast, some consumer and financial names weighed on the market.
Traders received one major economic release before the market opened this morning. Specifically, nonfarm payrolls rose by 178,000 during the month of November. This number, which largely matched expectations, demonstrated an improvement over the 142,000 payrolls added to the economy in October. Furthermore, it should be mentioned that the headline unemployment rate declined to 4.6%, which was also a plus, although the big issue here was a shrinking labor force. The Federal Reserve will be meeting in mid-December, and many on Wall Street now expect that the central bank will approve a modest interest-rate hike. While some traders may not be pleased, higher rates suggest that the economy is on a more solid footing. Further, a rate increase provides the Fed with the option of easing its stance in the future, if for some reason stimulus measures are needed.
Elsewhere, a few corporations posted profit reports over the past 24 hours. Specifically, shares of Smith & Wesson (SWHC) slipped on concerns about the gun manufacturer’s outlook. In the technology area, shares of Ambarella (AMBA) moved lower, after the semiconductor company delivered respectable results, but tempered its guidance.
Technically, the S&P 500 Index is positioned just below the 2,200 mark. Pushing stocks meaningfully beyond this level will be a key challenge for the bulls in the weeks ahead. – 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 - 12:10 PM EST
Though the bullish gains of the post-Trump rally have eased a bit, U.S. equities had a mostly positive morning of trading. The S&P 500 and NASDAQ, which have been under pressure this week, have pared some of the losses in the prior days, with the tech-laden latter composite tacking on more-than-21 points so far in the day. The Dow Jones Industrial Average, which helped to offset weakness from its counterparts for most of the past few days, spent most of the morning in the loss column. But, the index of 30 bellwether companies has seen most of its morning losses pared as we pass the noon hour on the East Coast.
At home, the Labor Department reported better-than-expected unemployment numbers. The November report showed the addition of 178,000 jobs, 3,000 higher than consensus expectation. Coupled with a fall in the unemployment rate to 4.6%, the release underscores the growing momentum exhibited by the economy. The modest beat is the final major employment update before the Federal Reserve meets in 11 days, and ought to stoke momentum for a modest (25 basis points) increase in interest rates. That is in line with our expectation that the central bank will begin to tighten monetary reins this month.
Meanwhile, prospects in the oil industry continue to improve after OPEC announced its member had struck production-capping accord. For months, tension and uncertainty mounted in the market, with investors gradually losing hope that the cartel could oversee a deal. That sentiment has changed since Wednesday, though. U.S. crude oil is above $51 per-barrel today, with many believing a $60 valuation may be on the horizon. This has accordingly spurred related industries higher. Still, OPEC will now be tasked with getting non-member countries on board, including Russia and Venezuela.
As we pass the noon hour in New York, advancing stocks are head of decliners by a comfortable margin. All but two of the 10 major market sectors are in positive trading territory, with consumer cyclicals and financials groups exhibiting some modest profit taking. We expect more range-bound, back-and-forth jostling between the bulls and bears as the week wraps up. Next week’s opening prices will include reactions to Italy’s constitutional referendum, which is set to take place on Sunday. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
The broad-based rally that began after the election returns were all in on November 9th and then persisted in almost uninterrupted fashion for the better part of three weeks, appears to be fraying. In part, this shift in sentiment could reflect some profit taking after this inclusive advance. However, it could also be the result of a shift in sentiment and a new look at some of the likely beneficiaries of the incoming Trump Administration's expected economic programs. In any case, after a selective easing in the market during the session on Wednesday, the uneven selloff continued yesterday, with certain groups doing some backing and filling.
Specifically, we saw further strength in oil prices yesterday, as Wednesday's deal among the world's leading producers to cut crude output, which propelled oil 8% higher and lifted the energy group about 5% on the day, continued in the latest session, albeit with a little less enthusiasm than in the prior trading day. Still, oil did move up about $2.00 a barrel in New York dealings at one time, crossing the $51-a-barrel threshold, while Brent crude soared above $54. Such gains propelled the energy group higher once again, albeit with less gusto than on Wednesday.
But save for the energy stocks, which were up more than one percent at mid-session, there were few areas of notable strength. But there was some extensive weakness in certain groups. On point, material losses were suffered by the consumer non-cyclical issues, and the health care, technology, and utility groups, with the latter selling off on interest rate fears. As to interest rates, the ongoing strength in the economy, which this week saw an upward revision in third-quarter GDP growth, and stronger-than expected data on personal income and manufacturing, has now pushed the yield on the 10-year Treasury note up to near 2.5%.
The rising note yields, meantime, and an up move in the 30-year Treasury bond--to past 3.10%--raises the possibility the Federal Reserve, which will meet on December 13th and 14th, will lift short-term rates by a quarter of a percentage point. That would be the first hike in a year and possibly be followed by two or three more upward moves in 2017. At this time, traders are focusing on the likely benefits of the Trump Administration's tax and spending plans, which is reasonable given the investor-friendly nature of such proposals. At some point, though, the Street may start to focus on the higher competing yields.
In any case, the market moved lower into and through the afternoon. Still, there were nifty gains in such blue chips as Goldman Sachs (GS - Free Goldman Sachs Stock Report) and Chevron (CVX - Free Chevron Stock Report). Such strength helped the Dow Jones Industrial Average move comfortably ahead for much of the day before wilting late in the session. However, the NASDAQ, a prime casualty in Wednesday's trading, continued to press notably lower yesterday, with the afternoon loss ballooning toward 100 points. The S&P 500 Index and the small- and mid-cap indexes also gave ground, but not as aggressively as the NASDAQ.
The selling, which was particularly pronounced in the technology space, then continued into the close, as it is now widely believed that the tech group will not do nearly as well as some banks, oils, and industrial concerns with the incoming Administration. As to oil, which, as noted, has climbed above $51 a barrel amid speculation it could reach $60 on this move, the accompanying stocks have been big beneficiaries to date. But this could change if prices spike much higher, as the benefits of low oil could fade quickly, with the higher quotations beginning to act as a tax increase.
Finally, on the economic front, the Institute for Supply Management reported that its manufacturing survey rose to a reading of 53.2 in November, which was above expectations. A more closely watched report, the monthly employment issuance, meantime, came out just moments ago. Here, the expected increase of 175,000 non-farm payrolls last month came out as a gain of 178,000. That fairly reasonable uptick was accompanied by a jobless rate of 4.6%, which was below expectations and near a decade low. Unfortunately, average wages per hour were off slightly, a level that suggests the economy is not doing quite as well as 2016 runs down. Still, even with that nominal setback, the economy appears as though it is in fairly good shape going forward.
As to the market, stocks are falling around the world so far today, posting losses in Asia overnight and in Europe so far this morning. Meantime, our futures, off modestly before the jobs posting, are now showing somewhat weaker results. However, a big market move appears unlikely--at least at this point. But stay tuned. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
