After The Close
The futures markets fell modestly this morning after news broke that the U.S. and North Korea could not come to an agreement on disarmament. Traders worried that this would signal a decreased likelihood for a positive outcome in the U.S. trade negotiations with China. However, sentiment recovered some when U.S. fourth-quarter GDP growth came in higher than expected at 2.6%. Overall, the markets opened lower, and the Dow Jones Industrial Average fell as many as 67 points in early trading, while the S&P 500 dropped nine points. However, the indices rebounded a bit after positive statements from some White House advisors, concerning the increased likelihood for a U.S. trade deal with China. But, this positive price action faded into the final portion of the trading session, and new daily lows were made near the end of trading. All told, the Dow was lower by 69 points while the S&P 500 dropped by eight points.
Additionally, market breadth was slightly negative, as decliners outpaced advancers by a 1.3-to-1.0 ratio. REITs were among the strongest performers of the day, despite higher bond yields, which tend to be a negative for those stocks. On the other hand, materials equities were among the weakest performers, as prices for precious metals fell.
In commodity news, oil prices were modestly higher, as a continuation rally from yesterday’s gains occurred. In addition, U.S. Treasury bond yields were up some, as the premium demanded for the safe haven asset rose in light of the failed disarmament negotiations. The VIX Volatility Index increased mildly, as a down market only slightly boosted demand for option protection.
Looking ahead, a few key economic indicators are expected tomorrow, including the final February number from the University of Michigan consumer sentiment index. Too, the ISM Manufacturing Index is slated for release.
In addition, a few companies are expected to report quarterly results.
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
After back-to-back inconclusive stock market sessions earlier this week, traders stepped up to the plate yesterday morning and did some early selling. At first, the market's retreat was mild, and it continued to look as though a turn higher would be forthcoming. But assorted concerns came together to push equities notably lower as the morning proceeded. Several components of the Dow Jones Industrial Average, in particular UnitedHealth (UNH – Free UnitedHealth Stock Report), underperformed in early dealings, with that composite heading sharply into negative territory. All told, after one hour, the Dow was off by 165 points.
Also of note yesterday was the second day in succession of Congressional testimony from Federal Reserve Chair Jerome Powell, who suggested that the economy was in good shape, but still faced challenges from abroad. Late last year, the Fed Chair had suggested that we had a case for further interest rates increases this year. The stock market fell in response. More recently, the Fed has pointed to a patient approach, which would likely keep rate adjustments to a minimum. The Street liked this revision, and stocks have been climbing ever since.
In other news, Pakistan said that it had shot down two jets in Kashmir. India and Pakistan have seen tensions rise between the two nations in the past week. And now those tensions are spilling over. All the while, a summit between the leaders of the United States and North Korea is going on, and efforts are under way to fashion a trade accord with China.
Meantime, the stock market continued to weaken as the morning progressed. In addition to the averages heading lower, shares of individual concerns, such as WeightWatchers (WTW), weakened on earnings concerns and an undistinguished outlook.
As to trading, stocks were pressured as the U.S. Trade Representative hinted that a trade deal was not yet certain, indicating that a deal would include the matter of enforcement. He also signaled that getting a deal would be a long process. So, stocks wobbled, but managed to come off of their lows as the morning wound down. In all, as we neared the noon hour in New York, the Dow was off about 100 points, after having been lower by 180 points at the morning's worst reading. The comeback then would continue as the afternoon began, with the Dow's loss shrinking and the NASDAQ turning positive as we moved inside the final two trading hours.
In sum, the indexes, after trying hard, could not all come back, with the Dow and the S&P 500 Index giving ground grudgingly, but with the NASDAQ gaining ever so slightly as trading concluded. All told, the blue chip composite eased 73 points; the S&P lost two points; and the NASDAQ added five points. The small-cap Russell 2000 also gained nominally. So, for a third time in as many days, the market ended on an inconclusive note, with traders hoping for the best on trade, but now suddenly fearful about delays in that area as well as concerned about the escalating fury between Pakistan and India.
Looking ahead to the penultimate session of the trading week, we see that stocks were lower in Asia overnight, after talks between the United States and North Korea broke off abruptly with no nuclear agreement reached, while in Europe, the leading bourses are trending downward, as well, so far this morning. In other news, oil prices are off after gains yesterday and Treasury note yields, which jumped in dealings yesterday, are lower so far this morning. Finally, in a release just issued, the U.S. Government reported that the nation's gross domestic product increased by 2.6% in the fourth quarter. That was well down from the third-quarter gain of 3.4%, but was in line with expectations. All told, the U.S. equity futures are mixed heading into the new trading session.
- Harvey S. Katz, CFA
