After the Close
The final day of the holiday-shortened trading week was a directionless one for Wall Street. With the major U.S. equity indexes either at or near record highs in recent days, today’s trading session saw some early selective profit taking, though the selling was always well contained, and left the door open for a partial late-day rally, which took place in the final hour. At the closing bell, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index, which were all lower for most of the session, were able to rally into positive territory, albeit just modestly. Although we did get news from the business beat, Corporate America, and the White House, there was nothing that was of the headline nature to move the market much.
For the four-day stretch, the results were rather mixed. The large-cap Dow Jones Industrial Average and the S&P 500 Index finished with modest gains, while the tech-heavy NASDAQ and the smaller-cap Russell 2000 gave a bit of ground, though neither of the latter two indexes finished the week too far removed from their all-time highs. The big news this week was the minutes from the latest FOMC meeting, which showed that the central bank leaders believe that the economy is getting close to being able to withstand some monetary tightening. With the labor market improving and inflation moving closer to the Fed’s target of 2%, it may bring some increases in interest rates (maybe as many as two or more this year). The growing sense that the central bank may embark on a slightly more restrictive monetary policy later this year may be responsible for taking some wind out of the bulls’ sails during the final few days of this trading week.
As noted, today brought some selective profit taking on Wall Street. Market breadth favored the bears slightly, with declining issues holding a modest lead on advancers for the entire session on the NASDAQ—though razor thin by closing bell on the NYSE. However, more of the 10 major equity groups than not were in positive territory, which was indicative of the overall directionless day we witnessed on Wall Street. Still, the biggest moves among the top-10 sectors were to the downside, with the most notable declines taking place in the commodities (i.e., basic materials and energy), and financial groups. A sharp move lower by the stock of Hewlett Packard Enterprise (HPE) after the company issued weak guidance weighed some on the performance of the tech sector. The commodities were hurt by a slightly stronger dollar, and data showing an uptick in the U.S. rig count, which may hurt oil prices, put pressure on the stocks of the oil companies today. A pullback in yields hurt the financial stocks, with intra-day weakness in the shares of banking giants JPMorgan Chase (JPM - Free JPMorgan Stock Report) and Goldman Sachs (GS - Free Goldman Sachs Stock Report). There was a move into bonds, which hurt yields—the yield on the benchmark 10-year Treasury note fell seven basis points today—and weighed on the financial stocks. Conversely, the lower fixed-income yields gave a boost to the higher-yielding equities groups, most notably the utilities.
We received a few reports on the U.S. economy a half-hour into today’s trading session. The big release came from the housing sector. At 10:00 A.M. (EST), the Department of Housing and Urban Development reported new home sales increased by 3.7% sequentially in January and were up 5.5% versus the year-earlier period. Although the pace of growth was a bit below the consensus expectation, it was another encouraging reading on the U.S. economy. Likewise, the University of Michigan’s final reading on consumer sentiment for the month of February came in at 96.3, which was down slightly sequential, but up 5% year over year. It should also be noted that the Sentiment Index has been higher during the past three months than any time since March 2004. The decent economic data provided some support to equities today.
Meantime, the news from Washington D.C. did not have much of an effect on trading today. President Trump’s speech at a Conservative forum did not give much of a boost to an already extended market, nor did it detract from it.
Looking ahead to next week, the economy will take center stage with the fourth-quarter earnings season nearly in the record books. The next five trading days will bring reports on durable goods orders, personal income and spending, manufacturing and nonmanufacturing activity, auto sales, and consumer confidence. We will also get another revision to fourth-quarter GDP growth on Tuesday, and the latest Beige Book summation of economic conditions from the Federal Reserve on Wednesday afternoon. The latter report has the potential to produce a move in equities, given that the focus of the investment community will be shifting to the economy, the Fed, and Washington D.C. Investors should also note that President Trump will give a speech before Congress next Tuesday night, which has the potential to move the equity market. Stay tuned. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentio
Mid-Day Update - 1:05 PM EST
The U.S. equity markets experienced broad-based selling on Friday morning. The downward movement occurred as profit takers closed select positions from the historically bullish post-election run. Each of the major indexes opened in the red, with the NASDAQ again holding onto the widest loss early on. The tech grouping’s fifteen-day winning streak was broken yesterday, and has its work cut out if it hopes to salvage a week-long advance this afternoon.
Only the utilities sector avoided negative territory during the morning hours. Though non-cyclical consumer goods, telecom, and , to a lesser degree, healthcare managed to reestablish gains as the midday neared, the selling impacted nearly every market grouping. Energy, financials, and yesterday’s biggest laggard, basic materials, experienced the widest aggregate losses before noon.
But the selling spree may be short-lived. A mostly positive earnings season and optimism that President Trump’s policies will yield robust growth continue to support the bulls’ case. And, although today’s updates from the business beat were mixed with sluggish gain in new home sales offset by a higher-than-expected consumer sentiment reading, the economic backdrop remains strong.
Meanwhile, a rise in U.S. crude inventories forced domestic oil prices lower. The seventh-consecutive weekly increase negated optimism stemming from OPEC’s output-limiting accord. This dichotomy between domestic inventories and foreign production has characterized the market for some time. And while the latter has recently had a positive impact on oil prices (as high as a 90% adherence rate has been reported), the inability of U.S. drillers to reduce surplus has been a considerable headwind in the past few weeks. So far in the day, U.S. crude oil has lost $0.43 (0.79%) per-barrel.
So, as we passed the noon hour in New York, we saw the NASDAQ and broad-based S&P 500 pare their losses, perhaps gearing up for an afternoon rally. The Dow remained hampered by the performance of its financial components, giving away nearly 60 points around lunchtime. With the bearish grip on the trading appearing to selectively loosen as the day wears on, we would not be surprised to see another campaign by the bulls before the markets close for the weekend. – 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
Following a rare down day for the equity market on Wednesday, if just incrementally so, stocks started out selectively to the upside yesterday, mainly on encouragement from the Treasury Secretary, who suggested that the aim of the Trump Administration is to see "very significant" tax reform passed before the Congress goes on recess in August. The prospect of a sizable tax reform package coming out of the revised leadership in Washington, has been one of the underpinnings to the stock market's vigorous rally since the election, along with loosened regulations, and the promise of more infrastructure spending.
So, some of the averages got out of the gate quickly, and in less than an hour, the Dow Jones Industrial Average had crossed the 20,800 mark, posting a gain of almost 50 points. However, as was the case on Wednesday, the other indexes, both large and small, started to stumble, with the S&P Mid-Cap 400 Index and the Russell 2000, for example, showing marked softness. Gold, meantime, considered a safe haven, rose in early dealings. As to the bond market, it strengthened, too, even as the Federal Reserve's minutes from its late-January FOMC meeting, raised the specter of a more aggressive posture on interest rates.
In other news, one day after the National Association of Realtors reported an encouraging, albeit modest, increase in existing home sales during January, the Labor Department indicated that weekly jobless claims had remained near their lowest levels in more than 40 years, thus affirming the further strength in the job market. Later today, the government will issue statistics on new home sales. That headline report will be out some 30 minutes into the trading day. Regarding yesterday's performance, stocks softened steadily, after the better opening, into the middle of the day, with the Russell 2000 sinking more than a percentage point.
As we neared the noon hour in New York, even the Dow had given back its gains, while the NASDAQ, under pressure from some tech issues, had fallen 45 points, or about three-quarters of a percentage point. Losing issues, meantime, had taken the lead from advancing stocks by a modest amount on the NYSE, but were swamping gainers on the NASDAQ, while six of the 10 major sectors were lower at that point, with notable weakness in basic materials and technology. So, it was not an especially pretty picture as the afternoon began.
However, the outlook began to improve as the session progressed further, and by the middle of the afternoon, the Dow was back in the black, as was the S&P 500. However, the NASDAQ, the S&P Mid-Cap 400, and the Russell 2000 remained in the red, albeit less severely than earlier in the day. This sideways pattern continued throughout much of the afternoon, as the buyers took a needed breather following many weeks of consistently accumulating stocks. As we moved toward the close, little further had evolved, and stocks ended matters in mixed fashion.
Specifically, the Dow rose by 35 points, to yet another record high (20,810), and the S&P 500 edged up by a point. However, the NASDAQ fell 25 points; the S&P Mid-Cap 400 lost nine points; and the small-cap Russell 2000 fell by nine points, or two-thirds of a percentage point. Breaking things down a little further, we see that gaining stocks overtook losing issues on the Big Board, but by just a 15-to-13 count. On the NASDAQ, losing issues held a moderate advantage. Among the 10 leading groups, there was a clear divide, with the basic materials stocks doing the worst, while the utilities staged a comeback on falling bond yields.
Now, the week is about to conclude, and as it does, the market in Asia were modestly lower overnight, while the bourses are off rather sharply thus far in Europe this morning. And, on cue, with this weaker backdrop in place, our equity futures are backtracking as well, with the Dow futures off notably at this hour. Thus, we could see some early profit taking in a market that continues to fashion one all-time record after another, with the Dow Industrials, for example, moving up past 20,800 yesterday. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
