After The Bell
The market started out much lower today, as a dour retail sales report from the Commerce Department spooked investors. Indeed, the report stated that December sales were 1.2% lower than the previous month, which marks the largest decline since 2009. Too, a few key earnings reports impacted the market, as well. This led to the Dow Jones Industrial falling by as many as 235 points at its low, while the other indices were lower in tandem. However, stock prices started to rebound soon thereafter, as traders started to question how much of the slowdown in sales was attributable to the government shutdown. Meanwhile, Senate Majority Leader Mitch McConnell stated that President Trump would sign the previously-agreed upon government funding deal. That news boosted sentiment. The markets moved up toward breakeven on the day, briefly passing that level. And many stocks traded in a sideways fashion during the final portion of the session. All told, the Dow finished lower by 104 points, while the S&P 500 was off by seven points, the NASDAQ bucked the trend, and was up seven points.
Additionally, market sentiment was largely mixed despite the lower close on multiple indices. Energy stocks were among the best performers on the day, while the consumer stables equities were some of the weakest. This sector was dragged lower by Dow-component Coca-Cola (KO – Free Coca-Cola Stock Report), which delivered an underwhelming forecast for 2019.
In commodity news, oil prices finished the day higher, as increased sentiment for a trade deal between China and the United States helped increase demand forecasts. Meantime, bond yields were slightly lower, as a flight to safe-haven assets occurred. The VIX Volatility Index was a bit higher on the day, as demand for option protection grew.
Looking ahead, tomorrow’s slate includes a number of economic data reports, including the University of Michigan Consumer Sentiment Index and capacity utilization for January. In addition, a few large companies are scheduled to report results, including PepsiCo (PEP) and Deere & Co. (DE), which will likely impact trading tomorrow.
- John E. Seibert III
At the time of this article’s writing, the author had positions in KO.
Before The Bell
The stock market, up strongly on Tuesday on indications that the President would sign the recently fashioned budget accord, thereby eliminating the possibility of a second ruinous government shutdown in two months, perked up further as yesterday's session got under way. Optimism on a possible trade deal with China appeared to be the major inducement to buy in the latest session. On point, investors became hopeful that trade authorities in the United States and China would be able to hammer out an agreement before a deadline in early March arrives, this gave the market a strong jolt higher at the outset of trading.
All told, the Dow Jones Industrial Average quickly jumped out to an advance of some 200 points. Gains also were fashioned by the S&P 500 Index and the NASDAQ. It now seems likely that the March 1st deadline will be pushed back somewhat, a possibility that always has been there, but one that had failed to excite investors while progress in trade talks had been held at bay. Now, that looks to be a changing narrative, with the two sides seeking to bridge their gap. A trade deal, meantime, could help foster greater growth on both sides, thereby keeping the early 2019 rally going.
The other big variable this week has been the budget. There, a tentative deal to secure funding for border security has seemingly been fashioned in the past day or so, with the President, as noted, now expected to sign on. Meanwhile, this one-two punch is helping the market to strengthen notably, and whereas stocks had look oversold several weeks ago, the averages could be becoming overvalued in the short run. Whatever the case, the Dow, with yesterday morning's further surge, has pushed back above 25,600. That brings it within 1,500 points of its all-time highs.
As to other influences, data issued yesterday morning showed that the Consumer Price Index was unchanged in January; an uptick of 0.1% had been the forecast. Over the past 12 months, the all items CPI Index rose 1.6%. Clearly, inflation is not yet a problem. That issuance also emboldened traders yesterday morning. To be sure, some of the glow came off of the market as the morning concluded, but modest increases in the core averages held as we headed into the afternoon, amid further signs that the President would sign off on the proposed budget deal.
The market then would stay range-bound, with the Dow holding to an advance of some 80-100 points until we reached the final hour of trading when some further buying sent the 30-stock index back up by more than 175 points. As before, there was considerable optimism on a trade deal evolving with China. Indications once more that the President would sign the compromise budget deal also emboldened traders. This more positive feeling would continue until the final few minutes of the trading day when there was some minor late profit taking.
In all, this back-to-back positive breakout enabled the Dow to finish higher by 118 points. More modest increases of eight and six points, respectively, were tallied by the S&P 500 Index and the NASDAQ. Most groups did well, but there was some modest slippage in the food processing stocks. Looking out on a new day now, we see that stocks were lower in Asia overnight. In Europe, meantime, the bourses are tracking higher so far this morning. Finally, oil prices are rising; Treasury yields are lower; and the U.S. equity futures are posting early solid gains on optimism about U.S.-China trade talks.
– Harvey S. Katz, CFA
