After the Close
Equities headed lower this morning and remained weak throughout the afternoon. At the close of the trading, the Dow Jones Industrial Average was lower by 111 points; the broader S&P 500 Index was off 19 points, and the NASDAQ was down 49 points. There was a negative bias to the session, as losers outnumbered winners by a wide margin on the NYSE. From a sector perspective, there was notable weakness in the technology and utility names. The telecommunications and basic materials issues, while still down for the day, displayed a degree of relative strength.
It was a light day for economic news, with just one item released earlier this morning. Specifically, according to the National Association of Realtors, pending home sales dipped 2.5% during the month of November, where a slight increase had been anticipated. Higher mortgage rates were probably partially to blame. Further, if the Federal Reserve continues to lift interest rates, we could see added pressure in this area. Tomorrow, we get a look at the employment situation, as the weekly initial jobless claims are due to be released.
Finally, there were few notable corporate profit reports released today. However, this will soon change, when the fourth-quarter earnings season commences. More important than the quarterly figures being posted by the leading corporations, will be the guidance that they provide for 2017.
Technically, equities have been moving in a sideways range for the past couple of weeks, and today’s selling was not too constructive. Some of the major averages seem to be hitting resistance at key numbers. On the Dow, overtaking the 20,000 mark is proving somewhat challenging. On the NASDAQ, the 5,500 level may be hard to overcome on a closing basis. Meanwhile, the S&P 500 Index is near the 2,500 mark. As this level may provide some support, it is also an area to watch. – 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 - 12:15 PM EDT
U.S. stocks generally moved lower in early morning trading on Wednesday, a continuation of the wave of selling that began yesterday afternoon. Investors remain fixated on that psychologically significant Dow 20,000 figure. But the past week has shown some hesitation amongst traders, slowing down a post-election rally that at one point looked poised to drive the Dow well past that number. The index, as well as the S&P 500 and tech-laden NASDAQ, hit their low points around 11 A.M. in New York, before gradually recovering some of the losses thereafter.
Only the basic materials sector registered a gain during morning trading. Declining shares more-than doubled advancing issues for most of the morning, a discrepancy driven by widespread selling in the small- and mid-cap category. Given the market’s rampant run up over the past two months, we expect many investors are collecting profits. Speaking broadly, the above-discussed milestone figure also seems to be causing some investors to reflect on current valuation levels.
A disappointing economic report also contributed to the morning’s pullback. Pending home sales fell 2.5% in November, underscoring some risk in the housing industry. Higher mortgage rates and a low inventory of existing homes played a major role in the decrease. Tomorrow’s release on jobless claim will close the book on 2016’s economic data, a year characterized by steady, but often uninspiring, growth.
Meanwhile, oil prices appear to be holding near their 2016 peaks ahead of OPEC’s implementation its production cap accord. The cartel’s apparent success at enrolling many of the world’s major drillers in a six-month output cap has instilled some much-needed confidence to the global energy market. But the sustainability of said limit remains to be seen. Volume ought to pick up after January 1st, when the agreement goes into effect.
As the noon hour approached on the East Coast, the late rally amongst the blue chip stocks seemed to be fading again with the Dow now some 20 points away from the breakeven line. In all, we see little reason for the bulls to awake and storm past the 20,000-point mark as the day goes on. Sure, the milestone is still within striking distance, but the dearth of sustained buying momentum in recent days leads us to believe the crossing of that threshold will not occur until after the New Year. – 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
Wall Street's bulls began the final trading week of the year with apparent intent on breaking through the elusive 20,000 mark on the Dow Jones Industrial Average. This latest try followed several failed attempts last week, when the Dow came fairly close, but could not close the deal. Even so, the latest five-day span did result in the seventh straight weekly gain for that 30-stock index. Meantime, along with the higher start for the Dow, which brought that index to within 20 points of the magical number early in the session, the NASDAQ rose to a record intraday high above 5,500 before backing off somewhat.
Helping stocks to get the ball rolling, meantime, was some constructive economic news, highlighted by an uplifting report from the Conference Board on Consumer Confidence. That closely tracked report showed that the U.S. public was increasingly upbeat with respect to prospects for the economy and their well-being looking out to a new year. Specifically, that survey registered a reading of 113.7 for December, which was better than the upwardly revised November tally of 109.4 and the expected result of 109.0. The December tally also was the strongest reading since mid-2001.
Also helping the market get off to a good start was the release of an upbeat survey on home prices and a better-than-expected reading from the Richmond Federal Reserve. Also, the Dallas Fed came in with an upbeat result, that succession of strong tallies, as noted, helped the Dow and the other indexes to a smart early gain and to a record intraday high on the NASDAQ, which eclipsed 5,500. At its morning peak, that tech-heavy composite was ahead some 50 points, or almost 1%. Smaller proportionate gains were held by the Dow and the S&P 500 Index, as the bulls seemed at last ready to break out the champagne.
But alas, the morning's optimism did not carry over into the afternoon, and the one-time Dow gain of almost 50 points was pared back notably as the session wound down and the buying tapered off. As to the character of the market, one note of caution was provided by a relative paucity of institutional demand on this holiday week, with so many market participants on the sidelines or on vacation. Also possibly hurting the buying enthusiasm was the fact that bond yields, already up sizably in recent weeks, rose a little further, with the 10-year Treasury yield climbing just past 2.57% in the early afternoon.
Looking out to the finish line and to the fact that today's economic reports will largely close the book on 2016, save for tomorrow's data on jobless claims, the Dow could yet struggle to get past 20,000 this week. However, such a round number is likely to be surpassed whether it is this week or next. And once that 30-stock index does top this psychologically important round number, investors will likely focus on the reality of valuations, which could bring on some selling early next year. Whatever the timing, we believe the market is a bit pricey and possibly vulnerable, especially if yields continue to climb.
Moving into the close, the market failed to get a second wind. So, the session wound down to an inauspicious ending, as the key averages held onto just modest gains. But the advance, if not sizable, remained broad-based, with gaining stocks still in a comfortable lead over declining issues. However, at some three-to-two, it was less than at mid-session. Even so, just about all of the 10 equity groups rose in price, albeit in an incremental manner, as the bulls once more attempted to effect a record Dow close of 20,000. In the end, though, they came up short.
All told, the Dow gained 11 points, but ended 55 points short of 20,000. The NASDAQ, meanwhile, which had ascended the 5,500 level, also closed below that round number, climbing 28 points, to 5,489. The S&P 500 and 400 also closed modestly higher, as did the small-cap Russell 2000. Looking out at a new day, we see mixed action overseas in early dealings, both in Asia and in Europe. We also see flattish oil prices and bond yields. Further, our futures are just nominally higher at this hour, suggesting no real pressure to surge to Dow 20,000 just yet. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
