After the Close
Stocks managed to make further progress today. At the close of the session, the Dow Jones Industrial Average was up 65 points; the broader S&P 500 Index was ahead nearly five points; and the NASDAQ was higher by 24 points. Support for equities was fairly widespread, as winners easily outpaced losers on the NYSE. From a sector perspective, the financial and basic materials names forged ahead, while the consumer non-cyclical issues retreated.
It was a relatively quiet day for economic news. Specifically, initial jobless claims came in at 258,000 for the week of December 3rd, which was more or less matched expectations. Tomorrow a couple of reports are due out. Of note, the University of Michigan will release its preliminary consumer sentiment reading for the month of December. In addition, wholesale inventories for the month of October are scheduled to be released.
Elsewhere, a few high-profile retail corporations weighed in with their numbers over the past 24 hours. Specifically, shares of Costco Wholesale (COST) advanced, after that company posted a better-than- expected report. In addition, shares of lululemon athletica (LULU) surged after the apparel company delivered an upbeat report and announced a share repurchase program. As the final weeks of 2016 draw to close, some companies may well be issuing revised guidance for the year. This is important as it may help set the tone for the upcoming corporate earnings season.
Technically, stocks continue the rally that started just after the presidential election. Today’s buying positions the S&P 500 Index at roughly 2,246, with the 2,250 level just within range. Clearly, pushing the index above this large number would be a nice accomplishment for the bulls. – 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
Following another record-setting day of trading, U.S. equities were somewhat mixed for most of this morning. The small- and mid-cap indices are outperforming the S&P 500 and Dow Jones Industrial Average, with the index of 30 bellwether companies near the breakeven line for much of the morning hours.
The NASDAQ, which has at times been left out of the post-Presidential Election buying spree, was up around 25 points at its mid-morning peak. Fears that the President-elect’s trade policies would drastically undercut the industry’s business practices have somewhat abated in recent weeks, leaving the healthcare sector as the most under-pressure sector among the 10 major equity groups. The Affordable Care Act and drug pricing appear to be two areas the incoming Trump Administration is targeting for reforms, and shares of pharmaceutical and related-services companies have accordingly struggled since the election.
Elsewhere, the industries that have most benefitted from Mr. Trump’s election continued to offset softness elsewhere in the market. Basic materials stocks are trading mostly higher, due to hopes that a ramp in infrastructure spending occurs in the near term, while financials are up again in anticipation of a looser regulatory environment and tighter monetary policy.
On that second note, it seems very likely that the Federal Reserve will enact a 25-basis-point interest-rate increase next week. Optimism spurred by the business-friendly result of the Election has mostly overshadowed news from the central bank. In fact, the impact of a said rate hike is probably already largely priced into the market. A bigger question, perhaps, will be what the Fed plans to do after December, and whether or not it will show its hand to market watchers after the conclusion of its two-day meeting on Wednesday afternoon.
Meanwhile, U.S. oil rose above $50 per-barrel at one point today, in spite of the growing belief amongst investors that non-OPEC nations will not agree to an output cap. Saturday’s summit in Vienna will determine whether or not the cartel can enlist the support from non-members to stabilize the global energy market.
Still, despite the quiet open to the day, we see that the sectors that have greatly benefitted since Mr. Trump’s election are up again. We would not be surprised if the afternoon brings another stretch of buying, as yesterday’s session began in a similarly directionless fashion as todays. – 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
After two bullish, but rather ho-hum, trading sessions to start the week, the major U.S. equity averages shook off a sluggish beginning to yesterday’s session and soared in the afternoon hours. The surge, which saw the Dow Jones Industrial Average climb more than 300 points in intra-day trading before ending the session up 298 points, was broadbased, with the tech-heavy NASDAQ and broader S&P 500 Index also recording sizable gains, though not as big as that of the index of 30 bellwether companies. Quite frankly, with the exception of the healthcare sector, buyers had a plethora of attractive equity options yesterday. It marked the 12th time since the November 8th presidential election that the Dow 30 finished at an all-time high.
Once again, the move higher on Wall Street was driven by sentiment that the incoming Trump Administration will push for a number business-friendly initiatives, including sizable corporate-tax cuts, infrastructure spending, and a significant rollback in regulations, when the President-elect takes the oath of office on January 20th. Not surprisingly, among the major equity groups, the leadership came from the economically sensitive groups (i.e., basic materials, financials, and industrial), as well as the telecommunications category. Investors should also note that it was the first time in two years that the Dow Jones Transports finished at a record high. However, as noted above, not every industry joined in yesterday’s festivities, as the healthcare sector finished in the red. In particular, the biotech stocks suffered losses after an article in Time magazine quoted President-elect as saying that drug pricing is too high and his Administration plans to push for lower price points. The article rattled the shares of the big pharmaceutical companies, but the selling in that category was more the exception than the norm yesterday.
The continued Trump rally has pushed the Federal Reserve, which meets next week for two days to set monetary policy, to the side in the minds of investors. The Trump election appears to be a bigger factor right now for the market than the central bank’s interest-rate decision. The market seems to have already priced into its valuations a 25-basis-point interest-rate increase. Our sense is that the only thing that could derail the Trump rally and the possibility of a forthcoming Santa Claus rally would be a very hawkish 2017 view on monetary policy by the lead bank. Still, the consensus is that the Fed will be measured with regard to tightening the monetary reins in 2017.
The equity market rally has not just been confined to the homeland, as the main indexes in Asia and the major bourses on the Continent have climbed steadily and sharply this this week. The European move is a bit surprising as it came despite the prediction of doom and gloom if Italy’s Prime Minister was defeated in a constitutional referendum last weekend, which did happen. Meantime, earlier today, the European Central Bank (ECB) extended its quantitative easing program to the end of 2017, but it will reduce the monthly pace of bond buying. However, the decision comes with the flexibility for the ECB to step up asset purchases or prolong them if needed. Europe’s lead bank will slow down the program in April to a monthly rate of 60 billion euros ($65 billion) from 80 billion euros currently. ECB President Mario Draghi will hold a press conference later today in Frankfurt, Germany, where he will detail the changes to the parameters of the quantitative-easing program. The ECB news has more than offset any negative feelings about Italy’s banking struggles and is giving a boost to equities on the Continent. All of the major European bourses are higher as trading moves into the second half of the session.
With less than an hour to go before trading commences on the home front, the futures are presaging a modestly higher opening for the U.S. equity market. The futures are close to the breakeven line, much like they were at this time yesterday. Given the dearth of economic and earnings data stateside, and the news that the ECB will continue its highly accommodative monetary policy, we would not be overly surprised if it was another good day for stocks. 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.
