After The Close
The stock market got off to a weak start this morning, sold off dramatically in the afternoon, before paring some of its worst losses in the late afternoon. At the close of the day, the Dow Jones Industrial Average was down 464 points; the broader S&P 500 Index was off 40 points; and the technology-heavy NASDAQ was lower by 108 points. Market breadth was still quite negative, with declining issues easily outpacing advancers on the NYSE. From a sector perspective, the energy names weighed on the market, with the price of crude oil dropping about 4% to roughly $46 a barrel in New York. The technology shares were also quite weak. In contrast, the high-yield utilities managed to make progress, as investors looked for safe havens.
In economic news, initial jobless claims came in at 214,000 for the week of December 15th, which was a constructive reading. Further, the Conference Board’s Leading Indicators Index moved up 0.2% in November, which was also an encouraging number. Tomorrow, we get a look at the final estimate for third-quarter GDP, with analysts calling for the economy to expand at a 3.5% annualized rate. So far, the economic numbers still suggest that the domestic economy is making progress, despite mounting concerns that weakness overseas may start to become a problem.
Yesterday, the Federal Reserve lifted interest rates slightly. The central bank did signal a willingness to moderate its outlook and be more accommodative, if needed. However, many traders on Wall Street were not satisfied, and that played out in the stock market again today. Furthermore, concerns about a possible government shutdown, and a sense of intensifying political unrest in Washington, also may be depressing sentiment.
In the corporate arena, we heard from a few big names over the past 24 hours. Shares of WalgreensBoots Alliance (WBA – Free Walgreens Stock Report) lost some ground, even though the drugstore giant delivered respectable results. Shares of ConAgra (CAG) tumbled after the food processor provided a sluggish outlook.
Technically, the stock market has lost considerable ground lately. Some of the averages (including the NASDAQ) have entered bear market territory, and traders are starting to get somewhat worried. With the end of the year approaching, some of the selling that we are seeing may be due to mutual funds engaging in window dressing (reducing position in weak names) and tax-loss selling.
- Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
2:40 PM EST
It is mostly about the Federal Reserve now, and that is not sitting well with the Wall Street bulls who are taking another pummeling today. On point, one day after the Dow Jones Industrial Average reversed course mid-session, going from an index gain of some 400 points to a closing loss of 352 points, that composite is taking it on the chin again.
Specifically, after the Fed's decision to raise interest rates by another quarter of a percentage point yesterday, a move that was widely expected, the market is selling off badly again today. It was not the Fed's decision to hike borrowing costs that turned things down, but rather its suggestion that it would continue raising rates in 2019 that damaged whatever bullish sentiment remained.
In addition, outgoing House Speaker Paul Ryan has just said that the President will not sign off on a short-term budget accord to prevent a partial government shutdown unless he gets the funds for border security. Add in ongoing trade concerns and the NASDAQ has now fallen into bear market territory, which is a peak-to-trough decline of 20%, or more.
In all, as we reach the final 90 minutes of trading today, the Dow is off by 526 points (after plunging by almost 700 points, earlier); the S&P 500 is off by 53 points; and the NASDAQ is lower by 152 points.
- Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The stock market, following a seesaw session on Tuesday, in which a better than 300-point advance in the Dow Jones Industrial Average was largely whittled away, began yesterday's trading notably to the upside, with that aforementioned 30-stock composite quickly soaring to an increase north of 250 points. It would retain that vigorous uptick through much of the first two hours of live trading, before giving back some ground as we moved nearer the noon hour in New York. All eyes were on the Federal Reserve at the time, as the lead bank readied to leave its latest FOMC meeting (see below).
In fact, the Fed was just about all that was on the market's mind as morning faded into afternoon yesterday. The above strength reflected the sense on Wall Street that the Fed would raise interest rates (which it did) and issue a dovish critique of its actions and likely road ahead. That, however, would not be the case. Gains in Boeing (BA – Free Boeing Stock Report) and Caterpillar (CAT –Free Caterpillar Stock Report) led the way higher, meantime. Several tech names also did well in the morning. Expectations had been that Fed Chair Jerome Powell would be fairly dovish in his assessment, which he was not. In all the Fed raised rates four time this year. Just two increases now appear likely in 2019.
Meanwhile, there were casualties on the day, which was dominated by the central bank, with shares of FedEx (FDX) being hit after the carrier said it was lowering its 2019 earnings guidance, after reporting weakness in its overseas business. That issue was down a hefty 10% as we hit the noon hour. However, the equity market drew support from news of a bipartisan Senate plan to avoid a government shutdown that could have occurred on Friday. This was short-term (through February 8, 2019) continuing resolution to fund the government, as lawmakers now have room to debate whether to pay for the President's southern border wall.
In other news, one day after the government reported a nice surprise on the housing front, in which housing starts and building permits both gained more than forecast, the National Association of Realtors reported that sales of existing homes had risen by 1.9% in November. A slight dip had been the forecast. The new seasonally adjusted annual rate is 5.32 million homes. For a time, this solid report and expectations that the Fed would assume a dovish posture had been enough to support a strong showing by the stock market yesterday.
However, after the Fed adjourned the FOMC meeting and suggested there likely would be two additional interest-rate increases in 2019--the latest guessing had been for no rate hikes, a suggestion we did not go along with--the Dow lost all of the near 400-point advance in place as the Fed statement was issued. In fact, not only did the entire gain dissipate, but the key index would proceed to tumble by about 500 points for a time. The Fed vote, it should be noted, was unanimous. It seems clear that the Fed now will be data dependent when it comes to raising interest rates in 2019.
The losses continued in place until the close, with the Dow and the other averages going back and forth, but staying in the minus column throughout. At the end of the day, the Dow, once up nearly 400 points and down some 500 points later on in the day, ended matters lower by 351 points, after earlier hitting a new yearly low. Also, the S&P 500 Index and the NASDAQ, which also fell to new lows in 2018, ended off by 39 and 147 points, respectively. It was another blood bath for the bulls, who now have seen more than 3,500 points shaved off of the Dow since that index hit an all-time high on October 3rd.
Now, after yesterday's fireworks, a new day is upon us, and looking across to Asia we see that stocks traded lower in the overnight hours, while in Europe, the leading bourses are pushing downward, as well, in the early morning hours. Also, Treasury note yields, specifically, the 10-year Treasury, which tumbled down to 2.78% yesterday after the Fed meeting, are passing hands at 2.76%. Also of note on a day in which we will get the release of the leading indicators, where no increase is expected, the U.S. equity futures are suggesting an uninspired opening when trading resumes.
– Harvey S. Katz, CFA
