After The Close
The stock market started strongly today, as fears ebbed about the coronavirus. Additionally, a few key economic indicators were positive, including building permits, which reached near a 13-year high. Too, new starts were much higher than expected, while the Producer Price Index showed 0.5% rise in inflation during January. The Dow Jones Industrial Average climbed by as many as 176 points by the late afternoon. The other indices were up in tandem, showing better prices throughout the day. The S&P 500 and NASDAQ both recorded all-time highs. In the final portion of the session, prices tapered off a bit. All told, the Dow closer higher by 116 points, the S&P 500 was up 16 points, and the NASDAQ rose 84 points.
Moreover, market breadth was somewhat positive, with advancers outpacing decliners by a 1.5-to-1.0 ratio. Energy stocks were among the best performers of the day, while REITs were among the weakest, likely hurt by the likely increase in competition from the new housing stock.
In commodity news, oil prices rose considerably, as traders’ fears about the coronavirus ebbed. This suggests they believe demand will pick up shortly. Meantime, U.S. Treasury bond yields were higher, as traders sold the safe-haven asset. The VIX Volatility Index was lower today, as demand for options protection fell a bit.
Looking ahead, tomorrow will have plenty of economic releases, including the Energy Information Administration’s weekly report on crude oil inventories. Too, initial jobless claims for the week are on the docket, as is the February report of the Philadelphia Fed survey. Meantime, several large companies, including Dow-component American Express (AXP – Free American Express Stock Report), are slated to report quarterly results. Overall, we think trading tomorrow will be affected by any developments in the coronavirus outbreak and any changes in the earnings picture.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Wall Street opened the new and holiday shortened trading week on a negative note following a succession of daily gains through much of the opening six weeks of the new year. The problem seems to have been the fast-spreading coronavirus. The disease, which has seen a mounting toll of illnesses and deaths, has especially wreaked havoc on China, the country where the deadly disease originated. Not only has the infection taken a mounting toll on individuals, but on China's economy, as well.
Now, the toll seems to be spreading. On point, for several weeks now, economists have been bringing down growth expectations for China, with the consensus being that there will be no increase whatsoever in GDP in the first quarter. In fact, as things worsen on the disease front, a decline in GDP cannot be ruled out. In recent years, growth in that fast-growing country had been on the order of 6%. Now, fears of a spreading recession that could take in other counties in that region are surfacing.
And yesterday, iPhone maker Apple (AAPL – Free Apple Stock Report) warned that it would miss March-quarter revenue guidance due to coronavirus supply-chain sales issues in China. Apple stock, fell nearly $6.00 a share in active trading. Sales in China are at a near standstill. Moreover, hardware suppliers will be affected, and several chipmakers saw their stocks sell off in action in the latest session. Taken together, the market faced enough headwinds to fall rather in the early going yesterday.
Specifically, the market started on the downside, with the Dow Jones Industrial Average quickly falling back by nearly 200 points in early action. Then, after an abortive attempt to make a half-hearted rally, the averages tumbled to their lows for the session, with the blue chip composite dropping to its low for the day at near noon in New York when it was off about 280 points.
The market then would spend the afternoon trying to pare its losses and did so with some success. The comeback, in fact, would gather momentum after 2:00 PM (EST) and continue into the close, with the NASDAQ actually going nominally into the green as trading concluded for the day. The S&P 500 would finish off by 10 points while the Do would shed 166 points on the aforementioned drop in shares of tech icon Apple.
Not all the news was dour, however, as shares of Netflix (NFLX) rose strongly, gaining nearly 2% to its highest price point in two and a half years. Also firming were shares of Tesla (TSLA). That issue surged by $58 a share to $858 a share on a brokerage house upgrade, in which the target price for the electric carmaker was raised to $1,200 a share. Save for these stocks and a few others, the news was sufficiently downbeat for the market to generally settle in the minus column.
Looking out to a new day and ahead of more likely news on the coronavirus, the equity futures are now pointing to a higher opening when trading resumes.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
