After The Close
Today, the market started trading higher, as the stocks began to recover from yesterday’s downward price action. A slew of decent earnings reports helped to boost sentiment, and the indices started to drift higher. In addition, some positive developments out of the U.S. trade talks with China increased the likelihood of a deal being completed. These included the report that President Trump will be meeting with Chinese Vice Premier Liu, next Friday. As a special envoy to President Xi of China, he has the authority to discuss trade policy. In addition, China has agreed to purchase up to $1.2 billion worth of U.S. goods according to another report. At its highest point, the Dow Jones Industrial Average was up just over 200 points. However, the market slipped negligibly into the final portion of the session. All told, the Dow closed higher by 181 points, the S&P 500 rose by 18 points, and the NASDAQ climbed 68 points..
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 2.9-to-1.0 ratio. In addition, technology companies were among the strongest performers on the day, while consumer staples equities were among the weakest.
Individually, a top story today focused on the problems at Kraft Heinz Corp. (KHC). Indeed, the company delivered lackluster revenues and earnings; moreove, management reduced the dividend payout, wrote down the value of a few of its brands, and announced an SEC investigation into its accounting practices. This was a notable part of why the consumer staples sector underperformed on a day with a strong move to the upside throughout much of the rest of the market.
Looking ahead to next week, the U.S.-China trade deal has a deadline scheduled for Friday, March 1st. Though most of the market is expecting this date to be extended, an adverse reaction would likely occur if further tariffs were enacted.
In addition, other economic news is scheduled to be released, including a significant amount of housing data, both at the macroeconomic and company levels, is expected. This includes the Case-Shiller Home Price Index and Toll Brothers (TOL) quarterly earnings results, both slated for release on Tuesday. In addition, consumer confidence is also expected on that day.
- 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
Worse, the Conference Board's leading indicators, issued after the market opened, showed a decline of 0.1% in January. That dip followed an unchanged reading in December and a scant 0.1% rise in November. In January, according to the report, the strength in the financial components was countered by weakness in the labor market components. In all, this latest data point made it three subpar months in a row for this key predictive series. These weaker metrics followed by one day the release of the Federal Reserve minutes from its last FOMC meeting, which warned of downside risks to the economy.
Of course, the big story on the Street remains the attempts to fashion a trade deal with China. Talks on that count remain ongoing and expectations are that some deal will be struck, even if it comes after the self-imposed early March deadline. According to the latest rumors, Washington and Beijing have begun drawing up memorandums of understanding over trade. As noted, the two sides are approaching an early March deadline that probably will need to be extended. As to the market, the bears were in charge, with the Dow still off by about 100 points after the first 90 minutes of trading.
The stock market then would continue to trade lower in a fairly narrow range through the remainder of the morning and into the early afternoon, with the Dow staying in a seesaw pattern around a loss of some 50 to 80 points. Modest losses also were tabulated by the other indexes. The small- and mid-cap composites also were weaker, but not dramatically so, as investors awaited any further news on the trade front. At this point, it looked as though the S&P 500 would fashion just its fourth loss so far this month. Health care, banks, and energy stocks were pacing the modest downward bias to that point.
Then after meandering about for a couple of hours, the market assumed more of a downward bias as we hit the concluding 90 minutes of trading, with the Dow quickly falling to a 160-point loss. The S&P 500 Index and the NASSDAQ also fell a little more sharply as the afternoon moved along. The weaker economic data and lingering uncertainty about trade contributed the most to the late-afternoon pullback. The deficits then built up a bit further as we moved inside the final hour of trading. It looked for a time as if the rout would be on.
All told, the Dow fell to a session-worst setback of just under 200 points before some last-minute buying pared the final deficit in the 30-stock index to 103 points. Losses of 10 and 29 points, respectively, were tallied by the S&P 500 and the NASDAQ. However, this dip aside, the selling pressure was light and we sense that we are not at the start of anything big. Probably, the latest session's action reflected mild profit taking in an overbought market that has been racing ahead with intensity over the past half dozen weeks or so. Our thinking also is that any trade breakthrough could send the buyers back in and in a hurry.
Now, as we start the week's final session, we see that shares were generally higher in Asia overnight, while in Europe, the leading bourses are trending upward, as well, on growing trade deal hopes at this hour. Summing things up, oil prices are climbing; Treasury note yields, up yesterday, are easing slightly; and U.S. equity futures are showing early strong increases on those growing trade hopes.
