After the Close
U.S. stocks held mostly lower on Wednesday morning, returning some of the gains registered early in the week. Advancing and declining equities were roughly equal through the midday hour, with healthcare and technology stocks holding back better-performing sectors. Market watchers are awaiting Dow 20,000, a milestone that the index momentarily came within 13 points of yesterday. The tech-laden NASDAQ also approached its own threshold, and finished the morning about 25 points shy of 5,500.
These psychological barriers have been the headlining story at the Stock Exchange since the Federal Reserve made its interest-rate decision last week. The central bank announced plans to combat inflation with a 25 basis-point rate hike, with subsequent increases scheduled throughout next year. Now, emboldened by the hope that President-elect Trump will follow through on his business-friendly promises from the campaign trail, investors are waiting to see if the so-called Santa Claus rally can instill enough cheer in the market to push it past these milestones.
Meanwhile, the first major economic news of the week was released this morning. Existing home sales unexpectedly rose in November, according to the National Association of Realtors. The increase was a welcome surprise to investors who had predicted a 1% decline. Higher volume in the Northeast was the primary driver for the advance, which was the most pronounced month-to-month gain in nearly a decade. The next two days will see the release of updated GDP, new home sales, durable goods orders, and consumer sentiment reports. If today’s reaction is any indication, these reports will have minimal impact on a market that appears destined to set a new baseline in the coming weeks.
Moving on to oil, the price of U.S. crude fell on surprise news that domestic stockpiles rose to 1.1 million barrels a day last week. Most analysts had anticipated another decrease, which would have been the fifth in a row. But, growing surpluses in coastal regions offset a decline at the Oklahoma delivery hub. In all, U.S. crude shed $0.80 a barrel on the day.
As the closing bell rang in New York, the reduced valuations seen in the morning hours largely remained for the rest of the day. The bulls mounted a few unsuccessful comeback attempts as the afternoon progressed, but never truly approached the breakeven line. The Dow and NASDAQ fell back 33 and 13 points, respectively, when all was said and done. Both still remain within striking distance of their respective noteworthy marks. – 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 - 12:00PM EST
The bulls attempted for a third time in as many sessions this week to make a run at Dow 20,000. And as was the case earlier in the week, the efforts have thus far come up somewhat short. To be sure, Monday and yesterday did see the principal large-cap averages tick higher, with yesterday's gain in the Dow Jones Industrial Average being rather formidable. But after an early modest gain this morning, the blue chip composite and the other key indexes have settled in a bit lower.
This retreat, which shows the Dow, the S&P 500 Index, and the NASDAQ all in the minus column, albeit in rather grudging fashion, suggests some logical hesitation before this key psychological barrier is surmounted, as we now believe it will be. Such behavior is similar to what happened as we approached Dow 10,000 a number of years ago. As to the action today, the aforementioned Dow is off 15 points; the S&P 500 Index is lower by two points; and the NASDAQ is weaker by 13 points.
As to influences today, the market is being helped by a slight retreat in bond yields, to 2.55% on the benchmark 10-year Treasury note. Stocks in Europe, meantime, were somewhat weaker today on worries about the health of the region's banks, although that probably has had little impact on our markets, which seem largely lower on a bit of profit taking. Regarding the U.S. market, we think the short-term momentum is on the side of the bulls, although longer term, the extended valuations now in place could point to some eventual difficulties.
Meanwhile, in other news, the National Association of Realtors, a leading trade group, earlier this morning reported that sales of existing homes had nudged up 0.7% in November on a surge in volume in the Northeast and a small uptick in the South. This report, which will be followed later this week by data on revised third-quarter GDP, orders for durable goods, sales of new homes, and consumer sentiment, seemingly has had little impact on equity trading either.
Breaking the market down, we see that the technology stocks and the health care providers are weak, while the energy and utility stocks are seeing some buying, while advancing and declining issues are in relative balance. In all, it is a ho-hum start to what may yet be a historic day if the bulls can get their act together and make a more serious charge at Dow 20,000. 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.
Before the Bell
With just days to go until Christmas, the year-end “Santa Claus” rally continues, getting a boost this year from the continued positive sentiment on Wall Street about the incoming Trump Administration. Stocks continue to move higher on hopes that President-elect Trump will put forth a number of business-friendly initiatives, including corporate and individual tax cuts and significant roll backs in regulations, during his first 100 days in the White House. The thought is that such measures would be good for the prospects of both Corporate America and Wall Street. This positive sentiment has offset any or all unsettling events since election night, including the recent assassination of a Russia’s ambassador to Turkey and a terrorist attack in Germany that has killed at least 12 people. Even news of an interest-rate hike last week and indications of a more hawkish Federal Reserve in 2017 could not derail the bulls.
Indeed, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were able to add to Monday’s modest gains with respective advances of 92, 27, and eight points yesterday. The latest move to the upside has the index of 30 bellwether companies and the tech-heavy NASDAQ on the doorstep of some psychologically significant marks, at 20,000 and 5,500, respectively. It should be noted, though, that each index has tested those levels recently and has met resistance thus far. But yesterday’s move higher, despite the aforementioned traffic events overseas, has market pundits pondering whether today will be the session that each index breaks those levels. The Dow 30’s case may be helped by shares of NIKE (NKE - Free Nike Stock Report), which are indicating a higher opening following the release of the apparel and shoe giant’s November-period results after the close of trading yesterday.
Meantime, the middle day of the penultimate trading week of 2016 will bring some news on the U.S. economy. At 10:00 A.M. (EST), the Commerce Department will release existing home sales figures for the month of November. The expectation is for a slight pullback in a metric that for the most part has trended upward this year. Given the home sales data, and its possible impact on the stocks of the home furnishing companies and the home-improvement retailers, and the aforementioned NIKE report, we would not be surprised if the consumer cyclical sector garners a lot of the investment community’s attention when trading kicks off today.
Speaking of the 10 major equity groups, the economically sensitive sectors once again led the move higher on Wall Street yesterday. In addition to the consumer discretionary names, we saw some nice gains in the energy, basic materials, and industrial categories. Conversely, there was some weakness in the higher-yielding (i.e., consumer staples and utilities) areas, with the recent rise in fixed-income yields weighing on the performances of those groups. The yield on the benchmark 10-year Treasury note, which has jumped over the last six weeks, rose two basis points, ending yesterday’s session at 2.56%.
Turning to the day at hand, the equity futures are pointing to a relatively flat—and somewhat mixed—opening for the U.S. equity market when trading commences in less than an hour from now. Likewise, the major European bourses are trading in a tight band around the neutral line as trading enters the second half of the session on the Continent. The storyline for today’s session will be whether the Dow Jones Industrials and NASDAQ Composite can break through the respective levels of 20,000 and 5,500. Stay tuned. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
