After the Close
The U.S. equity market soared on Wednesday afternoon, following a modest run up in the morning hours with a sharp increase that sent both the S&P 500 and Dow Jones Industrial Average to all-time intraday trading highs. The latter adding more than 300 points as the closing bell approached in New York. Even the tech-heavy NASDAQ, which has been relatively choppy in recent weeks, registered a solid 85-point gain.
We suspect today’s buying spree reveals that investors continue to gauge the potential impact of President-elect Trump’s proposed policies. Since his election, the market has enjoyed a largely uninterrupted rise. Promises of a massive stimulus to American infrastructure, from highways to bridges to airports, as well as the deregulation of specific sectors, has buoyed the rise for about a month.
Today’s rise comes less than a week before the Federal Reserve’s December meeting. Recently released indicators and data have revealed a steadily growing economy. Thus, the central bank is expected to initiate the first interest-rate hike in a year, and could potentially outline a plan for a gradual tightening of monetary policy in 2017. Accordingly, the financials sector continued to exhibit strength, driven by both the Fed and Mr. Trump’s intention to implement a more lax regulatory environment.
Meanwhile, oil prices took a hit today as concerns mount over OPEC’s ability to recruit non-member nations to agree on a production cap. The cartel came to an unlikely accord in late November when it resolved to limit output, but have apparently had trouble convincing other nations to get on board. U.S. crude oil finished the day down 2.3%.
Still, strength in the U.S. stock market helped to keep the energy sector in the earnings column today. In fact, nine of the ten major market sectors posted gains. Healthcare remained immune to optimism, however, with the President-elect saying that drug prices were too high being the latest reason to pull back shares in the industry.
Given the ongoing bullishness, we would not be surprised if a correction occurred and investors engaged in some profit taking. Many equities set new 52-week highs, with advancing issues more than tripling declining shares. – 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 - 12:00 PM EST
The major stock averages are mixed to modestly higher today, with little in the way of economic data or earnings news to influence shares. Heading into the noon hour on the East Coast, the Dow Jones Industrial Average is up 33 points and the S&P 500 is slightly higher; but the NASDAQ is off by two points.
The broader market shows a firm underlying tone on the New York Stock Exchange, where advancing issues are ahead of decliners by more than a two-to-one margin. Gainers are ahead of losers on the NASDAQ, too, but not by as much.
Perhaps most telling of today’s market action is the large number of stocks hitting fresh 52-week highs, versus those touching new lows. That is a sign of the recent strength in stocks. Today’s so-far unexceptional performance may be a sign of fatigue on the part of investors. The market’s recent rally has taken the major averages to new heights, and some consolidation is normal.
Although there is no significant economic data being released today, Wall Street is pretty certain that the Federal Reserve will raise interest rates for the first time in 2016 when it conducts its policy meeting next week.
Moreover, the thinking is that the move to tighten monetary policy slightly will mark the beginning of a series of moves, through 2017 and quite possibly 2018, to push up short-term rates. The prospect of higher rates has fueled quite a run-up in bank stocks, on the belief that better lending margins will be possible.
In other markets, bond prices are higher for a change, with the yield on the benchmark 10-year Treasury note falling to 2.36% from 2.39% (prices move inversely to yields).
Oil is also taking a breather today, with quotations down about 1%, to $50.38 a barrel, in trading on the NYMEX. Investors may be less eager to push up prices further without fresh signs of fundamental improvement in the supply and demand balance.
Overall, most sectors are ahead today, except for healthcare, which is apparently being hurt by a statement from President-elect Trump to the effect that drug prices need to reined in. – 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
One of those typical Monday/Tuesday reversals that have become rather commonplace this year never materialized on Wall Street yesterday. Instead, after some modest early profit taking, the major U.S. equity averages regrouped and moved higher over the course of the session, but trading never strayed too far from the neutral line. The fact that it was a quiet day on both the earnings and economic fronts did not provide any news to change the theme in the U.S. market. Thus, the bulls remained in control and were able to modestly build off of Monday’s gains. The Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index added 37, 24, eight points, respectively, to their already lofty totals.
Although the move higher by the major indexes was quite contained, market fundamentals clearly showed that the bulls were in charge. Advancing issues led decliners by a wide margin on both the New York Stock Exchange and the NASDAQ. Additionally, most of the 10 major equity groups finished in positive territory, with the leadership coming from the financials and telecommunications stocks. The financial stocks rose on expectations that the Federal Reserve will raise short-term interest rates next week, which would help the earning power of the banks, in particular. That same sentiment hurt the higher-yielding consumer staples and utilities issues, which are less attractive investment options to income-oriented investors who can get higher returns at less risk from government-backed bonds. The 10-year Treasury note is now yielding 2.37%.
As noted above, yesterday was a rather quiet day on the business beat. However, what reports we did get (productivity was up 3.1% in the September quarter, and factory orders were up 2.7% for October, with the latter marking their fourth consecutive gain in as many months) did provide a further encouraging snapshot of the U.S. economy. Within the last week, we have received uplifting reports on the manufacturing and nonmanufacturing sectors, consumer confidence, third-quarter GDP, and the labor market. Given that third-quarter earnings season is now mostly in the record books, the encouraging economic data and the hopes that the incoming Trump Administration will be pro-business may well carry the major averages over the remainder of this year. The one caveat, though, remains the Federal Reserve and what course it may lay out next week for interest rates in 2017. A hawkish outlook for 2017 may produce some selling, especially with the major indexes at lofty valuations, while a dovish stance may bring the start of one of those typical year-end Santa Claus rallies.
With less than an hour to go before the start of trading stateside, the equity futures are indicating a flat to slightly lower opening for the U.S. equity market. Much like yesterday, there is little economic or earnings news today to drive stocks forcefully in either direction, especially with investors hesitant to make any major moves ahead of next week’s FOMC meeting on monetary policy. This may cause a vacuum of trading, which given the positive reports on the economy of late, may well be more good news for the bulls on a day this nation remembers all those that lost their lives protecting our country’s interests in Pearl Harbor 75 years ago. Investors should note that the major European bourses are again sharply higher as trading enters the second half of the session on the Continent. 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.
