After The Close
The major U.S. indexes exhibited up-and-down movements today amidst another day of mixed market breadth. The large cap composites were particularly volatile, opening lower before hitting daylong highs early in the afternoon. Then, another bearish streak of trading pulled the averages back to their breakeven lines around 2:00 PM EST in New York until a late-in-the-day selloff brought the NASDAQ and S&P 500 to session lows. The Russell 2000 Index, meanwhile, managed to remain in the green from bell to bell, albeit barely at times. Generally, we believe many opportunistic investors are collecting some profits as concerns over a higher rate environment set the stage for some intermittent selling.
While yesterday’s announcement from the Federal Reserve has worked to limit earnings-related strength, the performance of Corporate America has been by-and-large encouraging. Most recently, shares of Facebook (FB) rose to record high prices due to the continued outperformance of its digital advertising business. E-commerce pioneer eBay (EBAY) soared, as well, with a strong December-period performance helping to mute some concerns over a reduced guidance from management. After the closing bell, updates from Apple (AAPL – Free Apple Stock Report), Amazon.com (AMZN), and Google-parent Alphabet(GOOG) will give investors plenty to digest ahead of tomorrow’s session.
Looking at the sectors, the mixed-to-negative tone is evident. Only energy, financials, and telecommunications stocks were able to achieve meaningful aggregate gains. Utilities shares bore the biggest daylong deficit, while the basic materials group was a notable laggard. The aforementioned trio of tech behemoths set to report earnings this afternoon ought to determine how the technology sectors fares on Friday. Embattled social media company Twitter (TWTR) saw its shares rise today, but the uptick was stoked to its prospects as a potential acquisition target, not quarterly earnings.
Elsewhere, U.S. crude oil rose to $65.80 a barrel, up 1.7% from yesterday’s closing level. The gain was supported mostly by a favorable survey on OPEC members as it related to the ongoing drilling limit. This helped to once again offset worries over domestic inventory levels and signals to us that investors remain bullish over the near-term global demand outlook. But with U.S. stockpiles likely to have a dampening effect on overseas positivity, the consensus belief is that the commodity is unlikely to pass $70 a barrel in 2018.
Still, despite the recent struggles in the broader equity market, we expect the bullish undertone to eventually resume in the coming weeks and months. Optimism from tax reform, continued outperformance from Corporate America, and a potential acceleration of economic expansion ought to all play a part in rejuvenating the market’s upward trend in the near term. Possible developments on infrastructure could also play a role in extending the market’s strength early this year. Stay tuned.
– 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
Following two days of dramatic losses, in which the Dow Jones Industrial Average tumbled a combined 540 points and the other key indexes faltered, as well, in an unrelenting selloff brought on by fears of rising interest rates, the stock market rebounded sharply in dealings yesterday morning. In all, the Dow opened more than 250 points higher, pushed forward by the likelihood that the Federal Reserve, which is expected to raise interest rates several times this year, would not opt to do so later on during the day, as it ended its two-day FOMC meeting. And, indeed, the central bank did vote to hold the line on rates yesterday.
The meeting, which finished at 2:00 PM (EST) yesterday, marked the last time that Janet Yellen would chair the bank's gathering. In subsequent confabs, that role will be passed to Jerome Powell. Meanwhile, in other news, Automatic Data Processing (ADP) noted that its survey on private-sector job growth had indicated that 234,000 new positions were added during January. That was above expectations of an 185,000 jobs gain. Note that the Labor Department will issue its monthly employment report tomorrow morning. The expectation at that time is that 175,000 payrolls will have been added in January. That report can be market moving.
Given the jitteriness of the bond market, with yields on Treasury securities climbing sharply in recent days, an increase well above that number might well be greeted harshly by Wall Street. For yesterday morning, though, the focus seemed to be on the Fed and the slight decline in Treasury note yields from 2.73% to 2.72%. There also was some attention paid to the President's State of the Union speech the prior evening. No major new ground appeared to have been broken there, so the buying persisted into the middle and latter stages of the morning.
However, the advance did start to weaken around the lunch hour, with the Dow's gain halving to about 125 points, while the Russell 2000 and the Value Line (Arithmetic) Composite went into the red. Indeed, save for Boeing (BA - Free Boeing Stock Report), the aerospace and defense giant and Dow component, which was up some 5% in the early afternoon, that index's upturn would have been significantly less. The market then picked up slightly as we neared the 2:00 (EST) Fed release. All eyes were on the accompanying lead bank statement on the future course of action, as few expected it to raise rates at this time.
And the Fed did not disappoint, as it held the line on interest rates, voting unanimously to retain the current rate level. However, it did suggest that inflation was becoming more of an issue, and that the heretofore elusive Fed 2% inflation target was likely to be reached this year. Expectations are, therefore, for at least three monetary tightening moves in 2018, with the next rate hike likely coming at the March get together. So, stocks faltered after the meeting, with the S&P Mid-Cap 400, the Russell 2000, and the Value Line (Arithmetic) indexes all going negative, while the Dow's gains eroded further.
Still, after the aggregate market went negative, there was some last-minute buying by the large caps that lifted the Dow back to a 73-point final gain, while the NASDAQ ended nine points higher. Still, the smaller-cap indexes could not catch up, finishing in the red. Still six of the top 10 equity groups ended higher, while gaining stocks led losing issues on the Big Board. The reverse was true on the NASDAQ. So, it was a mixed session, with the aforementioned Boeing, which gained nearly $17 a share, providing all of the Dow's gains yesterday, and then some.
Now, a new day and a new month begins, following a January that saw strength almost from start to finish, notwithstanding the late slide. Thus, armed with this strong early move, we look overseas to see that the principal indexes in Asia finished the session in a mixed mode. Meantime, in Europe, the Continent's major bourses are moving higher at this time. Oil, moreover, lower yesterday, is trading up this morning thus far, while Treasury note yields, which backed off ever so slightly yesterday, are climbing again thus far in dealings this morning. Finally, U.S. equity futures are suggesting a choppy opening this morning.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
