After the Close
U.S. equities delivered a strong performance to end the week, propelled by solid growth from the business beat and a pair of regulatory decrees form the executive branch. Entering the session, both the S&P 500 Index and Dow Jones Industrial Average were significantly away from their respective opening-week values. But, much-needed economic and political clarity served to stimulate the bulls and help each grouping finish the day, and week, up considerably. The movement of the NASDAQ was a bit choppier early on, at least on a relative basis, but never appeared to be in danger of falling into negative territory. Elsewhere, the Russell 2000 Index recovered mightily today, while the S&P Midcap 400 and Small Cap 600 stocks rose considerably as well. Accordingly, market breadth favored advancing stocks by a wide vast 3.7-to-1 margin.
We believe today’s activity represents an acceleration of the late-in-the-week recovery exhibited. The mid-week upturn was spurred by encouraging economic data on private employment and manufacturing, as well as the Federal Reserve’s decision to stand pat on its current interest rate policy. The ramping up in buying activity today was mostly caused by this morning’s non-farm payrolls report. The critical release showed the country added 227,000 jobs last month. The figure was well ahead of the December tally, beating consensus expectations by 57,000, and sent stocks sharply higher as the market opened. The report also included positive updates on labor force participation and a slight three-cent advance in hourly wages.
But, perhaps the most notable news item today came from the Capitol, where President Trump issued two edicts on financial deregulation. One action will delay a ruling on a fiduciary measure that would require financial advisors to operate in their client’s best interest. The executive action, which calls for a four-month review of the Dodd-Frank Act, was likely the primary cause for today’s bullish reception to political developments. This news helped to buoy the wide gains registered by banking stocks. In fact, the financial sector was far and away the best-performing sector on the market today, rising an aggregate 1.27% by the closing bell.
Ultimately, the second half of the week was in stark contrast to Monday and Tuesday’s bearish campaigns. With each of the major indices now trading near their respective all-time highs, we expect the profit takers to possibly come out next week. But, additional clearness on the Administration’s plans for regulatory, trade, and tax reform would help the bulls maintain control of the market. Stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:20 PM EST
Stocks are making strong progress today, helped by an upbeat jobs report, and some encouraging corporate news. At just past noon in New York, the Dow Jones Industrial Average is ahead 160 points; the broader S&P 500 Index is up 14 points; and the NASDAQ is higher by 17 points. Market breadth shows widespread support for equities, with winners comfortably ahead of losers on the NYSE. Most of the major stock groups are in positive territory today, with leadership in the financial and consumer issues. However, the basic materials sector is lagging, with particular weakness in the metals and mining names.
Traders received a key economic report early this morning. Specifically, non-farm payrolls rose by 227,000 in the month of January. This reading was far better than had been expected, and was also quite a bit higher than the December figure. Although the headline unemployment rate rose modestly to 4.8% for the month, this development is probably not too concerning, as the current figure is still quite low. Meanwhile, average hourly earnings rose just slightly, suggesting that there is little upward pressure on wages. This development, combined with low inflation in the broader economy, may have some traders thinking that the Federal Reserve will be in no hurry to raise interest rates. Meanwhile, the ISM non-manufacturing index came in at 56.5 for the month of January, helped by healthy new orders and increased business activity.
Elsewhere, the fourth-quarter corporate earnings season is in full swing, and we have heard from a number of widely held names. Specifically, shares of Visa (V - Free Visa Stock Report) are moving up, after the financial giant posted solid numbers. Shares of Amgen (AMGN) are also advancing on an upbeat release. However, Amazon.com (AMZN) put out a disappointing report, sending that stock lower.
Technically, stocks have been holding up reasonably well, as the corporate reporting season continues, and traders get adjusted to a new direction in Washington. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
Following Wednesday's underwhelming stock market performance in the wake of the Federal Reserve's decision to leave interest rates unchanged, Wall Street commenced yesterday's session modestly to the downside. In truth, yesterday's weak opening had very little to do directly with the Fed, as Wednesday's monetary decision had been widely expected. And the mixed showing that day by the leading averages and the market, in general, was an appropriate response, in our view. In general, yesterday's initial setback reflected some uneasiness about the new Administration's global positioning.
Specifically, a suddenly uneasy relationship with Australia, and additional friction with Mexico, look to be in place, and are playing a role is such market weakness, as nervousness was a dominant theme early in the day. As for other influences, there were a few, including a good release on initial weekly jobless claims, the prior day's strong manufacturing report from the Institute for Supply Management, and a cool down in U.S. vehicle sales in January. Here, after a strong December, generous incentives were unable to spur demand, causing sales to decline by 2% in the latest month.
But the big economic story was the wait for the just-released non-farm payrolls report. That critical release, always the highlight of the month for economists, showed that the nation had added 227,000 jobs in January. That was much greater than the 170,000 payrolls widely forecast for the month, and better than the revised 157,000 jobs added in December. Also, the jobless rate, which had been 4.7% in December, and was expected to hold steady at that low rate, came in just a tad higher at 4.8%. Clearly, the importance of this monthly survey for Wall Street cannot be overestimated.
As to the stock market's reaction to the report, the equity futures, up modestly before the report's release, jumped ahead after the issuance, which also included a three-cent increase in average hourly wages and a somewhat higher labor force participation rate of 62.9%. Overall, this was a very strong report, and one that could modestly affect the Federal Reserve's gradual timetable for raising interest rates. The lead bank, on hold with respect to rates at this week's get together, is likely to increase borrowing rates two or times this year.
Returning to yesterday's market action, and taking in the global uncertainties, a further succession of mostly better profit reports, and skittishness ahead of the aforementioned January jobs report, the slightly softer early performance was not overly worrisome. In fact, as we neared the noon hour, the market had turned mixed, with the Dow still a bit lower, while the NASDAQ had edged into the black. Things then improved even further for a while, before the averages again settled into a narrow trading range. All told, there was continuing movement back and forth into the late afternoon, with few changes of note.
Indeed, for the most part, the indexes held in a tight range, as worries on the political and international fronts and ahead of the just-issued jobs report made for choppy trading. In all, the market's moves were contained. In fact, there were more winning issues than losing stocks on the NYSE through much of the afternoon, with the lone area seeing a marked retreat being telecom. Some tech and industrial names strengthened, meantime, including U.S. Steel (X) on analyst upgrades. Such gains helped ease investor fears somewhat.
In sum, at the close, the Dow had managed to pare all of its loss but six points, just as the NASDAQ had. In truth, neither the bulls nor the bears wanted to make a definitive statement ahead of the Labor Department's report on January jobs. Now, following that issuance, the futures, as noted, are strengthening. This uptick comes after mixed results in Asia overnight and an early rise in the bourses in Europe this morning. Also of note, bond prices are up and yields are down so far this morning, in spite of the strong jobs report. All told, we likely are looking at a higher opening on Wall Street this morning. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
