After the Close
Stocks logged another constructive session today. At the close of trading, the Dow Jones Industrial Average was up approximately 46 points; the S&P 500 Index was ahead 13 points; and the NASDAQ was higher by 53 points. There was a decidedly favorable tone to today’s trading, as winners easily outpaced losers on the NYSE. Further, all of the major equity sectors made strides. Leadership was found in the technology and basic materials issues, while the high-yielding utility issues logged more modest gains.
Traders received just one notable economic report this morning. Specifically, the ISM Non- manufacturing Index edged up to 57.2 for the month of November, exceeding analyst expectations. Tomorrow we get a look at the factory orders for the month of October. The latest monthly trade balance figures are also due to be released.
Elsewhere, few corporations reported their financial results today. Of note, the third-quarter earnings season has now concluded, and traders are looking ahead to the close of the calendar year. However, a few companies may issue revised annual guidance in the weeks ahead.
Technically, today the market made some progress. The bulls managed to push the S&P 500 Index back above the 2,200 level. It remains to be seen if the broad index can advance further from here. Sentiment has become quite bullish, and possibly overly so, as the VIX (now at about 12.4) is at a very low level. – 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
Stocks are pushing higher on the first Monday of December, as investors shake off some volatility overseas. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is up 73 points; the NASDAQ is 49 points higher; and the S&P 500 is better by 16 points. Winners hold a decisive edge over decliners on both the New York Stock Exchange and the NASDAQ.
Mondays, especially morning sessions, are often slow-moving, as traders look for direction following the weekend. Not so today, as Wall Street seems to be partaking in the holiday spirit that is often a key factor in precipitating a year-end rally.
Some news from Italy was a bit concerning, but truthfully not all that surprising, when Prime Minister Renzi announced he would resign after his proposal to radically alter the government failed to pass muster with voters.
More to the investment community’s liking was the influential ISM report on November non-manufacturing. The data showed that non-manufacturing, or the services sector, rose in November for the 82nd consecutive month, and at a better-than-expected rate. The services sector clocked in with a 57.2% reading, higher than the 55.5% anticipated. The data was very solid overall, with particular strength in the Business Activity and Employment subsectors, and represented the highest reading since October 2015.
The ISM nonmanufacturing data acts as further confirmation that the economy is performing reasonably well, given recent gains in employment and the pace of GDP growth. The improving business backdrop will, in all likelihood, provide the Federal Reserve with all it needs to raise interest rates by one-quarter of a percent when it meets next week.
Elsewhere, the oil market is adding to recent gains on optimism that non-OPEC producers, such as Russia, will chip in with production cuts that would follow OPEC’s lead. The cartel last week announced that it would reduce output for the first time in eight years, sending energy shares higher.
The energy sector today is one of the better-performing market segments, along with tech stocks, which are recovering from some recent weakness. On the down side are the utility and telecom sectors, which are apparently being hurt by the prospect of rising interest rates. – Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
The U.S. equity market enters the new trading week fresh off a five-day stretch that could be defined as directionless, highlighted by the divergent performances of the Dow Jones Industrial Average and the NASDAQ. The two were rarely on the same page throughout the week. The index of 30 bellwether companies was helped by a strong performance from its energy components, while the NASDAQ was hurt by the weak showings from the technology stocks and some of the healthcare names.
Perhaps, what we did see last week—with the absence of any major moves by the indexes—was some investor fatigue after a remarkable post-U.S. Presidential Election rally, with investors emboldened by what they think will be an incoming pro-business Trump Administration. Indeed, with the major U.S. averages either at or near all-time highs, investors had trouble extending the gains last week. The broader S&P 500 Index meet some resistance at the 2,200 level. And it was not from a lack of supportive economic news. In fact, most of the data from the business beat were encouraging, including a spike in the Consumer Confidence Index, an upward revision to third-quarter GDP (from 2.9% to 3.2%), a solid reading on manufacturing activity for the month of November, and slightly better-than-expected nonfarm payroll figures last month. Likewise, the price of oil jumped on news that OPEC leaders have agreed on a production cap, which they hope, with some cooperation from non-OPEC members like Russia, will lead to a decrease in the oversupply of crude in the global market. Investors should note that at 10:00 A.M. (EST), we will get the latest figures on nonmanufacturing activity from the Institute for Supply Management.
Now, with the new trading week set to begin stateside, investors are looking abroad, with all eyes on the Continent. Specifically, Italy, where Italian Prime Minister Matteo Renzi has announced that he will resign following yesterday’s defeat in a referendum on constitutional reform. The election result, which was seen as a win for the nation’s far-right party, may well bring a period of political and financial turmoil for a country that has been struggling with its massive sovereign debt obligations. Indeed, many of Italy’s banks are drowning in bad debt and are in urgent need of additional funds. Similar type problems in Greece, a smaller economy than Italy, have roiled the world’s equity markets in recent years. However, that has not been the case thus far this morning, as the major European bourses have rallied and the equity futures are pointing to a higher opening for the U.S. equity market when trading gets underway in less than an hour from now. The situation in Italy remains a fluid one and could lead to a spike in equity market volatility, especially for those in the euro zone, in the days and weeks to come.
Meantime, the U.S. banking system will come into to focus this week, as we are now just a little more than a week away from the commencement of the Federal Reserve’s final two-day monetary policy meeting of 2016. For some time now, the expectation is that with the presidential election now in the rearview mirror, the central bank will raise short-term interest rates by 25 basis points at the FOMC meeting. Given the aforementioned string of solid economic data, we concur with this sentiment. The question will then be how much of an impact a monetary tightening, which is typically not well received by market participants, has on the equity market. Our sense is that a good deal of the likely forthcoming interest-rate hike has been priced into the market and that investors will be more interested in learning how aggressive or not the Fed may be with regard to monetary tightening in 2017. A hawkish view on 2017 could have more of a negative impact on trading than an actual interest-rate hike next week. 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.
