After the Close
Following yesterday’s upward movement, U.S. equities got off to a torrid start on Tuesday as the market marched toward the 20,000 point milestone. Indeed, at the peak of the morning buying spree, the Dow Jones Industrial Index hit 19,985. Both the NASDAQ and S&P 500 were also up big early in the session, underscoring the momentum the market has felt as the year comes to a close. The former index came close to its own milestone in the early morning hours, rallying within about 10 points of the 5,500-point mark.
With a dearth of new economic news to digest so far this week, positive sentiment continues to be driven largely by the President-elect’s promises to boost infrastructure spending and reduce corporate and individual tax rates. His administration will be installed in a month, after which we think certain parts of the market will return some gains from the post-election rally.
The surprise election of Mr. Trump, combined with the lead up to the central bank’s interest rate announcement last week, have stoked the multi-week rally. But, upcoming economic news may soon play a larger role in trading. Tomorrow, the monthly report on sales of existing homes is released. Durable goods data for November will also be made available in the morning. On Thursday, personal income, spending, and third-quarter GDP numbers will be updated. Finally, new home sales and consumer sentiment will be the focus on Friday. Now that the Federal Reserve has raised rates, and outlined a multi-year monetary tightening policy, these reports should figure more in the day-to-day movements of the market.
Meanwhile, domestic oil prices registered modest gains today as the global oversupply of stockpiles appears to be showing signs of a reduction. Government inventory figures are due tomorrow, and should help investors glean more insight on the near-term prospects of the commodity market. The tentative agreement between OPEC and other international producers has buoyed optimism on this front in recent weeks, though the sustainability of this agreement will remain to be seen.
As the closing bell neared in New York, we see the early-morning rally faded somewhat in the afternoon. In line with the norm for the past several weeks, small- and mid-cap equities make up for the lion’s share of the gains. Advancing issues outnumbered the declining counterparts by a 1.6-to-1 margin, led by stocks in the basic materials and financials sectors. As for the Dow, we see that the index added about 91 points during today’s session. The 20,000 level is in striking distance, and could be reached by the end of the week. As ever, stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:15 PM EST
Stocks are still basking in the glow of a rally built on the promise of lower taxes and less regulation after the Trump Administration is installed next month. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is up 90 points, and tantalizingly close to the unprecedented 20,000 level. Meantime, the NASDAQ is ahead by 21 points and the S&P 500 is nine points to the good.
The bullish sentiment clearly shows up in the broader market, with the advance-decline lines for both the Big Board and the NASDAQ indicating better than two-to-one margins for rising stocks versus those falling. Tellingly, too, there are many more stocks reaching fresh 52-week highs versus new lows in what has turned into quite a yearend showing for the market.
Small-cap stocks are also benefiting, with the Russell 2000 index a strong performer on the day. Smaller capitalization stocks don’t tend to have as much difficulty with foreign exchange, since underlying corporate operations are usually more domestically oriented. The strength of the U.S. dollar, which is at a 14-year high, is seen as dampening the results of major exporters.
The dollar is being supported by prospects for accelerating economic growth stateside and the outlook for higher interest rates in the year ahead. The Federal Reserve last week raised interest rates for the second time in ten years, but the expectation is that there will be a few Fed rate hikes in 2017.
Meantime, a big winner today is the stock of Fred’s Inc. (FRED). Walgreen Boots Alliance (WBA) has agreed to sell 865 Rite Aid (RAD) drug stores to Fred’s for $950 million in cash in an effort to get its merger with Rite Aid past regulatory scrutiny. Fred’s stock is sharply higher on heavy volume.
Elsewhere in merger news, the planned alliance of Astoria Financial (AF) and New York Community (NYCB) looks to have fallen through, probably on difficulty with regulators. Both of those stocks are trading lower on an up day for stocks after releasing word that they plan to abandon their merger plans.
In terms of sectors, all ten of the market’s major groups are trading higher as Wall Street pushes the DJIA toward 20,000. – Robert Mitkowski
At the time of this writing, the author had a position in Walgreen Boots Alliance (WBA).
Before the Bell
The bulls roared into the new week--and the penultimate five-day stretch of 2016--seemingly on a mission. And that mission, we sensed early in the day was to carry the Dow Jones Industrial Average, after a series of near misses, to the psychologically critical 20,000 level. Indeed, after trying to eclipse that key barrier on several occasions last week, only to fall back each time, and then concluding matters at just over 19,840, the 30-stock composite again shot past 19,900 early in the latest session, reaching 19,918 in the process.
The equity market then stayed higher throughout the morning on upbeat sentiment about increased infrastructure spending by the incoming Trump Administration and lower corporate and individual tax rates. The former tax cut, of course, would tend to increase earnings and profit margins of U.S. corporations; the latter would help put more spendable funds in the hands of individuals. The other equity averages, in particular the NASDAQ, joined in the early festivities, with the latter index up close to 50 points at its early session peak and within some 15 points of 5,500, which would be a record.
However, the market's momentum started to fade as the morning concluded, and the early formidable gains for the leading large and small-cap indexes wilted sufficiently by the noon hour in New York that the Dow's gain had largely eroded. But the pullback did not sustain itself, and as the afternoon commenced, the buyers returned. The NASDAQ, meanwhile, retained a nice edge. As to the stock market's breakdown, the mid-session gyrations still left seven of the 10 leading groups in the black at the time, led forward by the technology and telecom groups. However, basic materials weakened anew, as did the energy and financial issues.
As to other influences, stocks in Asia and Europe ended Monday a little weaker; oil was flat in early dealings; and the yield on the benchmark 10-year Treasury note, which late last week had climbed to a two-year high of just above 2.60%, eased back to 2.54%. So, as the afternoon began on a day with little material economic news to report on, save for some afternoon comments by Federal Reserve Chair Janet Yellen, the stock market was holding modest gains, with the Dow ahead by some 30 points.
Regarding the news background, the slow start aside, this will be a busy week for the nation's economy, as a succession of reports will be out beginning tomorrow. On point, that day will see the release of the monthly report on sales of existing homes. That metric is forecast to show a slight dip, but a healthy total, nonetheless. Also that morning, data on orders for durable goods for November are due out. A drop in demand is forecast. Then, on Thursday, revised third-quarter GDP figures are scheduled for release; a slight upward revision from the earlier reported 3.2% is the consensus view. Also pending that day are statistics on personal income and spending. Friday will bring metrics on new home sales and consumer sentiment.
The market then climbed further as the afternoon wore on, with the Dow briefly back up over 60 points and seemingly ready to move further ahead, to a possible second push past 19,900 en route to the hoped-for target of 20,000. Indeed, this afternoon upturn had some underlying strength to it, with a drop in bond yields--from last Friday's run-up--clearly helping. So, as we entered the final 90 minutes of the session, the Dow was perched just above 19,900, while the NASDAQ was holding onto a gain of some 30 points, with the advance being generally inclusive, but with particular strength in tech and telecom.
According to some pundits, investors are piling into stocks that have not had a major post-election run, such as technology. In the meantime, Janet Yellen intoned with her views, suggesting that the U.S. now had the strongest jobs market in nearly a decade. She also noted that wages looked set to increase in the coming months. Her remarks took some of the steam off of the rally. All in all, stocks drifted into the close holding modest, but hardly exceptional, gains, while bond yields continued to edge lower in a welcome reversal for equity traders.
At the close, the Dow was still ahead 40 points, but remained below 19,900. Meanwhile, the NASDAQ, buffeted by some late selling, still managed to end matters with a 20-point advance. The S&P 500 Index was a four-point gainer. The small- and mid-cap indexes rose, as well, but a bit more vigorously, while bond yields remained lower, as they had throughout the day. Now, looking out at a new day, and one that will again have little in the way of economic news, we see that stocks in Asia were mostly positive overnight, while the bourses are slightly higher thus far in Europe this morning. Our futures, meanwhile, are up somewhat in the early going. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
