After The Close
U.S. stock market averages stumbled out of the gate on Tuesday. Declining issues doubled advancing shares, with only the technology sector managing to post a full-day aggregate gain. By the final hour, the Dow Jones Industrial Average and S&P 500 had fallen deeper into negative territory, while the once-strong NASDAQ finished near its breakeven line. Still trying to shake off the correction from two weeks ago, the bulls will attempt once more to right the ship during the remainder of this holiday-shortened week.
Though the prospect of higher interest rates (discussed below) continued to weigh on large-cap stocks, a notable earnings miss from Wal-Mart (WMT – Free Wal-Mart Stock Report) was a notable drag on the Dow. The retail giant reported lackluster quarterly earnings, but investors were particularly alarmed by a 23% drop in e-commerce revenues. While stocks have generally risen somewhat from the recent lows, the still volatile fundamentals suggest the bears may return in the near future.
Meanwhile, U.S. crude oil rose to a new two-week high after a report on decreasing inventory levels spurred some optimism. Overseas developments remain positive too, with OPEC’s ongoing drilling accord helping to drive global supply levels closer to five-year averages. A rebounding U.S. dollar held the per-barrel gains in check to a degree, but the environment here is otherwise favorable.
The rest of the week’s performance will largely revolve around the release of the Federal Open Market Committee’s minutes, which is scheduled for 2:00 P.M. (EST) tomorrow. The central bank is expected to make three or four interest rate increases in 2018, so the transcript and subsequent comments from members will play a large role in determining the outlook for many investors. Elsewhere, on the business beat, existing home sale figures will be updated tomorrow morning.
– 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
Investors return from the long holiday weekend—the U.S. equity market was closed yesterday in observance of President’s Day—feeling a lot better than they did just a week ago. Recall that investors were licking their wounds at this time last week after a sharp selloff, coming off a stretch that saw two trading days of 1000-plus-point declines for the Dow Jones Industrial Average, which, along with the broader S&P 500 Index briefly fell into correction territory. The selling was prompted by concerns about inflation and worries that the era of easy money is possibly coming to an end. Historically stocks don’t fare well in periods of monetary tightening—and that was the case earlier this month.
However, last week the market seemed to catch its breath and stabilize, despite some continued patches of volatility. Ironically, it was some disappointing data from the business beat that may have helped sentiment for stocks. Specifically, a weaker-than-expected reading on retail sales was taken as a sign that the economy may not be overheating as much as many pundits think—and inflation could remain somewhat in check near term—and investors responded by going on a bargain hunting spree after the previous week’s sizable setback, which saw the Dow 30, NASDAQ, and S&P 500 Index retreat around 5% each. Those indexes recovered a good portion of that decline, rebounding by 4.2%, 5.3%, and 4.3%, respectively, last week. On the positive side, a strong showing from Corporate America during the fourth-quarter earnings season helped provide some support for equities. There also is a growing sense on Wall Street that the first-quarter earnings season will be a very good one, as well, perhaps even better than expected.
On Friday, the market turned in a mixed performance, with the Dow and S&P 500 Index finishing slightly higher, but the NASDAQ Composite giving a little ground. Still, there was slightly bullish undertone to trading, with the small- and mid-cap sectors finishing in the black, and advancing issues led decliners by a comfortable margin on both the Big Board and the NASDAQ. From a sector perspective, the leadership came from the healthcare and more defensive areas (i.e., utilities, consumer staples, and telecommunications). Conversely, there was some selling in the basic materials, consumer discretionary, technology, and energy groups. Clearly, there was some sector rotation on display, with still wary investors using the opportunity to shift some of their funds into the less risky areas in a “flight-to-safety” move on Wall Street.
Looking at the next four days of trading, investors will get very little news from the business beat, with the only report of note coming Wednesday morning in the form of existing home sales. On the earnings front, we will start to get some fourth-quarter earnings news from the retailers, a number of which have January yearends. The headline reports came from retailing giants Wal-Mart Stores (WMT – Free WalMart Stock Report) and The Home Depot (HD – Free Home Depot Stock Report) this morning. Investors seem to like Home Depot’s report, but are a bit disappointed by Wal-Mart’s figures. That said, with the news from both beats being rather light, the investment community’s attention will likely be on the Federal Reserve and inflation. On point, we will receive the minutes from the latest FOMC meeting on Wednesday afternoon at 2:00 P.M. (EST). That report, along with commentary from a few Federal Reserve District Presidents, which are scheduled to speak later in the week, will be closely monitored for clues as to how the central bank feels about inflation and how many interest-rate hikes may take place this year. The current consensus swings back-and-forth between the lead back tightening the monetary reins three or four times in 2018.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are presaging a lower opening for the U.S. equity market. The small-cap stocks, though, are likely to open higher, which may be a small sign that the bulls will be heard from later today, despite the weak broader start. So far this week the trading has been mixed overseas. The main indexes in Asia were sharply higher on Monday, while the major European bourses were modestly lower yesterday. And today, the opposite is occurring with the European bourses trading higher following setbacks for Japan’s Nikkei and Hong Kong’s Hang Seng overnight. The performances so far this week in the international markets speak volumes about the volatility in the equity markets right now, which in all likelihood is in store for U.S.-based traders returning to work today. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
