After The Close
The stock market opened higher, quickly pulled back, and then staged a solid recovery that lasted through the afternoon. At the close of trading, the Dow Jones Industrial Average was ahead 307 points, crossing over the 25,000 mark; the broader S&P 500 Index was up 33 points; and the technology-laden NASDAQ was higher by 113 points. Market breadth was positive, with winners nicely ahead of losers on the NYSE. From a sector viewpoint, the utility shares and technology stocks led the market higher, while the energy names failed to participate in today’s advance.
Investors received a mixed batch of economic reports this morning. Specifically, initial jobless claims rose by 7,000 to 230,000 for the week of February 10th, where analysts had been looking for a smaller number. On the inflation front, producer prices moved up 0.4% in January, which was in line with the consensus view. Finally, industrial production slipped 0.1% in January, where a small increase had been anticipated.
Meanwhile, traders continue to digest the numerous corporate profit reports coming out with some regularity. Of note, shares of Cisco Systems (CSCO - Free Cisco Stock Report) traded nicely higher, after the networking giant delivered a solid report. Also in the technology area, shares of Applied Materials (AMAT) moved up in response to an encouraging release.
Technically, today the stock market managed to extend the recovery that started a few sessions ago. Today’s gains puts the S&P 500 Index back to its 50-day moving average, located near the 2,720 level. Pushing equities beyond this key technical area will be the next big challenge 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.
Before The Bell
A one-two punch of dour economic news combined to throw stocks into reverse at the start of trading yesterday. To begin with, the Labor Department reported that the Consumer Price Index had jumped 0.5% in January, led by sharp increases in fuel, oil, gasoline, apparel, transportation, and medical care services. An increase of 0.4% had been the expectation. That price rise sparked fears that a higher rate of inflation was in the pipeline. That fear, in turn, boosted expectations that the Federal Reserve, which many believe will raise interest rates three times this year, could opt for a fourth hike in December.
At the same time, the Commerce Department reported that retail sales had eased by 0.2% last month; an increase of 0.3% had been the forecast. Here, notable declines were registered at motor vehicle and parts dealers, at furniture and home furnishings outlets, at building supplies merchants, and at health and personal care stores. This disappointing issuance caused several of the nation's brokerage houses to reduce their first-quarter GDP estimates. However, the equity market's morning descent was brief and comparatively shallow, and as we hit the 90-minute mark of trading, all of the indexes had moved to the plus side of the ledger.
Helping sentiment, which has been on the mend this week following a brutal five-day stretch for the bulls last week, was strength in the technology and banking groups. In all, the latter category was the strongest of the key sectors during the morning. At the same time, shares of the high-profile technology leaders were up sharply. As to the twin issuances, the CPI release was the more critical as it followed the report of a sharp rise in wage growth in the latest employment survey issued earlier this month. In recent years, by comparison, CPI data had been largely ignored by the Street given its almost uniformly benign nature. Not this time.
In the meantime, yields on the 10-year Treasury note climbed to a new four-year high of 2.89%, narrowly eclipsing the 2.88% yield posted last week. But the selloff in the stock market, as noted, was brief, perhaps because the listless retail survey might suggest that the economy is not taking off, as some speculate. If that is the case, the fears of inflation may be premature. Time will tell on that count. For now, though, the comeback by stocks was encouraging, and it continued into the noon hour in New York, with the gains actually increasing somewhat for a time.
The market was mostly higher as the afternoon began, though there was some unevenness in the Dow, after that earlier strength. But the Dow's second thoughts were just momentary, and as the afternoon progressed, so did the advance, which broadened and became notably more impressive. In all, the Dow Industrials surged out to a gain north of 250 points, while the NASDAQ, boosted by stellar gains on the tech side, sprinted ahead by more than 130 points. Gaining stocks, meantime, swamped losing issues by almost three-to-one, with technology, basic materials, and the financial issues leading the way higher.
This trend continued into the close, where in spite of a jump in the yield on the 10-year Treasury note to 2.91%, a four-year high, the Dow would close this bullish session with an advance of 253 points. Even more formidable increases would be tallied by the NASDAQ (up 130 points, or 1.9%) and by the S&P Mid-Cap 400 (ahead 35 points, or likewise 1.9%). In the end, it was a strong day for the bulls after what appeared likely to be a further meltdown at the outset on those worrisome inflation metrics. Still, unless the latest pricing trend is reversed on the consumer side, more fixed-income yield increase could follow.
Now, a new day looms, and we look out to Asia for some early indications. There, stocks were trading sharply higher overnight, following strong U.S. gains, while in Europe, the early read is notably higher, as well, despite the further jump in consumer inflation. Moreover. Treasury yields, at 2.91% on the 10-year note yesterday afternoon, now are passing hands at 2.93%. Finally, U.S. futures in the pre-market are suggesting a further impressive rally at the open.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
