After the Close
Stocks got off to a weak start this morning, but managed to firm up somewhat in the afternoon. At the end of the day, the major equity indexes managed to close in positive territory, with the Dow Jones Industrial Average up roughly 16 points, the broader S&P 500 Index ahead two points, and the NASDAQ higher by 17 points. Market breadth showed a favorable bias to the session, as winners were ahead of losers on the NYSE. From a sector perspective, the healthcare and energy stocks forged ahead, while the telecom and utility issues retreated.
Traders received just a few economic news items this morning. Specifically, durable goods orders increased 1.8% during the month of January. This figure met expectations and was also an improvement over the December reading. Meanwhile, pending home sales declined 2.8% in January, whereas analysts had been looking for further gains. Tomorrow we will get a look at the second estimate for fourth-quarter GDP. In addition, the Chicago PMI for the month of February will be released.
Meanwhile, few widely-held corporations posted financial reports today. However, after the market close, we hear from The Priceline Group (PCLN), a leading provider of online travel services.
Technically, equities continue to press ahead. However, with the fourth-quarter earnings season now largely over, it remains to be seen if the bulls can keep the buying campaign in place. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EST
The new trading week is off to a rather mundane start. Indeed, the major equity indexes have strayed little from the neutral line at any point this morning, with investors taking a bit of a breather ahead of slew of economic reports this week, the latest Beige Book summation of economic conditions from the Fed (issued Wednesday afternoon), and President Trump first prepared remarks in front of Congress tomorrow night. Each of these events has the potential to move the market, so, as we noted in our pre-market commentary, it is not overly surprising that investors are not making any major moves ahead of what is expected to be an active week on the business beat and on Capitol Hill.
What we are seeing is some notable sector rotation, with a reversal in what happened early on Friday taking place so far during today’s session. The movement is once again being driven by the performance of the U.S. dollar and fixed-income yields. A recovery in bonds yields this morning, which makes fixed-income securities more attractive to income-oriented investors, is pressuring the higher-yielding equities. Conversely, it is helping the financial stocks, particularly those of the banking institutions. Meantime, we are also seeing some strength in the commodities sectors, with the weaker dollar helping the energy and basic materials issues.
And unlike early trading on Friday, market breadth currently favors the bulls, which is a good sign that the buying may firm a bit as the trading day progresses. In general, advancing issues are leading decliners by more than three to two on both the Big Board and the NASDAQ. Investors should also note that the leadership in the equity market is coming from the broader small- and mid-cap sectors, a significant sign that it could be another win for the bulls on the penultimate trading day of the month of February.
Meantime, a heavy week of economic news got off to a decent start this morning. Specifically, the Department of Commerce reported that U.S. durable goods orders rose 1.8% last month, versus an expected increase of 1.7% and on the heels of two consecutive monthly declines to end 2016. However, when excluding the transportation category, orders actually slipped 0.2%, the weakest showing since June. Demand in a category that tracks business investment plans also fell 0.4%, the first decline since September. Not surprising, the report seems to be having a minimal impact on the equity market, especially with more significant data to come later this week, including reports on manufacturing and nonmanufacturing activity.
Looking ahead to the second half of today’s session, we think it sets up well—barring some unforeseen news from the White House, which has been known to impact the world equity markets since President Trump was elected to office on November 8th—for the bulls to get the new trading week off to an encouraging start. The noted strength in the small- and mid-cap markets is a feather in the cap of the bulls as we move toward the afternoon hours on the East Coast and will probably make it tough going again for the bewildered bears. 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.
Before the Bell
The major U.S. equity indexes begin the new trading week at or near their all-time highs. Although it was a rather directionless four-day stretch on Wall Street last week (the Dow Jones Industrial Average and the S&P 500 Index were up modestly, while the NASDAQ Composite and the small-cap Russell 2000 gave a bit of ground), the bulls are still very much in control of trading, emboldened by a number of factors. Indeed, the latest bull run has been fueled by a positive reaction to President Trump’s business-friendly initiatives; a strong fourth-quarter earnings season, which is quickly drawing to a close; and continued positive data on the economy.
On Friday, it was looking like the bears were going to have their way, with some selective profit taking throughout much of the session. However, the bulls were not held down for the entire day, using a rally in the final hour of the session to push the major averages into positive territory, albeit just modestly. Helping matters were some encouraging economic data, including a decent report on new home sales and a strong reading on February consumer sentiment from the University of Michigan. This, along with no further indications that the Trump Administration will push for a border-adjustment tax, which many see as detriment to trading, provided some afternoon support for equities and drove the aforementioned late-day rebound.
From a sector perspective, we saw some rotation among the 10 major equity groups. In the end, there were more up than down arrows among the top-10 sectors, but the moves to the downside were a bit more notable. The laggards were the commodities and financial groups, with a stronger dollar and falling bond yields (which move inversely to bond prices) the primary reasons for the weakness among those groups. Conversely, we saw some modest moves to the upside from the consumer, industrial, and healthcare groups. The higher-yielding utilities were the best performing group, helped by the drop in fixed-income yields. The rate on the benchmark 10-year Treasury note fell seven basis points during Friday’s session. Although the major averages rallied into the black late on Friday, there was a mild appetite for safety, as in addition to the jump in bond prices, gold was one of the few commodities to rise in value.
Looking at the week at hand, the focus of the investment community is likely to be on the business beat, with a number of important reports to be released over the next five trading sessions. We will get data 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 tomorrow 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 likely be shifting to the economy and the Federal Reserve, with the fourth-quarter earnings season now almost completely in the rearview mirror.
Investors will also be keeping close tabs on the dealings on Capitol Hill and the White House. And on point, President Trump will give his first prepared speech before Congress tomorrow night. That event has the potential to move the equity market. To date, President Trump’s business friendly agenda, which is expected to include significant corporate and individual tax reforms and regulation rollbacks, has been well received by Wall Street.
With less than an hour to go before the commencement of trading stateside, the equity futures are suggesting a slightly lower opening for the U.S. equity market, with some mild profit taking as the equity averages are still near their all-time highs. Overnight, the main in indexes in Asia finished lower, while the major European bourses are relatively flat as trading moves into the second half of the session on the Continent. Today’s big question is will the bears put up any kind of a fight against bulls, something they have been very unsuccessful at since the later stages of 2016. Our sense is that the latter party will be tough to beat again. 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.
