After The Close
Today, the stock market started out lower, as a slew of mixed earnings results weighed on sentiment. This caused the Dow Jones Industrial Average to fall by as many as 63 points in the first portion of the session. However, the indices rebounded shortly after hitting their lows, and momentum switched to the upside, allowing the market to steadily make back all of the losses and turn mildly positive. This was helped, in part, by solid results from Dow-component Walmart (WMT – Free Walmart Stock Report), which recorded solid earnings. Later in the day, momentum picked up after President Trump stated that the March 1st deadline for a U.S. trade deal with China is not a “magical date”. This suggests that the negotiating period could be extended. In the final portion of the day, the market faded slightly, giving up most of the gains. All told, the Dow Jones Industrial Average finished higher by eight points, the S&P 500 rose by four points, and the NASDAQ climbed 14 points.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 2.3-to-1.0 ratio. Materials stocks were among the best performers on the day, as prices for commodities rose, aided by improved sentiment for a trade deal. Meantime, healthcare stocks were among the weakest performers.
In commodity news, oil prices rose as increased demand prospects drove that commodity higher. In addition, gold and silver prices benefited, as well. Still, U.S. Treasury bond yields were lower, as some money was moved into that asset. The VIX Volatility Index was down, as demand for option protection fell.
Looking ahead to tomorrow, the economic calendar is somewhat light, as the mortgage bankers indexes are the major highlight of the day, tomorrow. Earnings reports will probably be the main focus, including one by CVS Health (CVS). In addition, a few other big names in the utility and real estate sectors are slated to report. Overall, tomorrow’s trading will likely be sentiment-driven, and investors may well focus on developments concerning a trade deal.
- John E. Seibert III
At the time of this article’s writing, the author held a position in Walmart (WMT).
Before The Bell
After weeks of rallying strongly, mostly on expectations of a more-forgiving interest-rate policy stance by the Federal Reserve and, more recently, by growing optimism about a trade accord with China, Wall Street stumbled ever so slightly last Thursday. A surprise decline in retail sales in December (the government is still playing catch-up following the earlier partial government shutdown, so older reports are coming out now), in which expenditures fell the most in a decade, the market resumed its winning ways on Friday ahead of the long President's Day Weekend. And it did so in dramatic fashion, with a wire-to-wire win.
Behind the latest big surge that saw the Dow Jones Industrial Average jump by some 350 points during the morning, was growing optimism that a reasonable trade package could be forged with China. In all, the stock market would score its eighth straight weekly gain. What specifically sparked the latest buying was a statement from China's President that trade talks would continue next week in Washington. The two sides are trying to secure a deal in advance of the March 1st deadline. It still seems possible, if not likely, that this deadline will get pushed back. But progress also seems apparent.
Meanwhile, in other news, following on the heels of the very weak retail numbers for December, the government reported Friday that industrial production fell by 0.6% in January. Economists had expected a gain of 0.2%. This decline followed months of uneven increases. The main contributor to the monthly setback was a 0.9% drop in manufacturing. The other two, and much smaller components, mining and utilities, each rose during the month. Also of note, capacity utilization eased last month, declining from December's 78.8% to 78.2% in January.
Unlike the experience on Thursday, the latest report did not embolden the sellers, perhaps because the news on trade was so overwhelming. Also, of note, a survey on consumer sentiment showed an increase, which was somewhat offsetting. All told, the good news on trade kept the market's advance going, with the Dow up just over 350 points at noon, with the NASDAQ up just grudgingly. However, the S&P Mid-Cap 400 and the small-cap Russell 2000 both were up strongly as we headed into the first part of the afternoon.
The market then would move sideways until the latter stages of the afternoon, with the Dow's advance staying in the 350-point area for the most part. Then, near the close, there was some apparent short-covering ahead of the weekend, with some traders not wanting to be caught short should there be some welcome movement on the trade front. That late burst helped the Dow conclude matters with a dramatic 444-point advance, or 1.7%. Things were not as strong elsewhere, with the S&P 500 gaining 30 points, or 1.1%, and the tech-laden NASDAQ ending 45 points higher. But that equated to well under 1%.
So, as earnings season fades, with a diminishing number of companies left to report, the fourth-quarter performance was a solid one, with about 70% of the companies in the S&P 500 Index posting positive surprises. About 60% of those entities did better than expected on the revenue line. Lesser gains are likely in the first quarter, as slowing GDP growth could well crimp margins. But for now, the focus is on trade, and so long as the outlook is encouraging there, the market could continue to roll higher. As it is, stocks are up strongly so far in 2019, with much of last year's late slump offset.
Now, following the long weekend, the Street is getting ready for a new trading week. Looking overseas, stocks were mixed in Asia in the overnight hours, while in Europe, the bourses generally are tracking downward so far this morning on U.S. - China trade concerns as talks get under way today. Also of note, oil prices are little changed and yields on key Treasury issues are off slightly thus far. All of this suggests that when trading resumes on our shores, the equity market will initially head a bit lower.
– Harvey S. Katz, CFA
