After the Close
The U.S. equity markets commenced the new week with a lackluster showing. At the end of the day, the Dow Jones Industrial Average was down 19 points; the broader S&P 500 Index was off nearly five points; and the NASDAQ was lower by three points. Market breadth was negative, as decliners outpaced winners by a clear margin on the NYSE. Most of the major stock groups lost ground. Of note, significant weakness was seen in the energy stocks, as the price of crude oil retreated to roughly $53 a barrel. In contrast, the technology names made some progress, thanks to gains in the computer hardware stocks.
There were no important economic reports issued this morning, and that may have contributed to today’s sluggish tone. Tomorrow and Wednesday will be light days, as well. However, the pace is expected to pick up on Thursday, when the weekly initial jobless claims are set to be released. We will also get a look at wholesale inventories for the month of December.
Meanwhile, the fourth-quarter corporate earnings season continues to dominate the headlines. Recently, we heard from Hasbro (HAS). That stock was up sharply today, after the toymaker delivered solid results. But, shares of Tyson Foods (TSN) slipped on concerns about the top line. Further, Sysco Corp. (SYY) stock moved lower, as investors seem to have had concerns about that company’s business outlook.
Technically, equities have been holding up reasonably well. The fourth-quarter earnings season has been generally supportive, and that has probably helped offset some uncertainty concerning the nation’s shifting political landscape. - Adam Rosner
Mid-Day Update - 11:45 AM EST
The U.S. equity market is seeing some modest profit taking to start this week—though the Dow Jones Industrial is now nominally higher. This is not overly surprising after last week’s strong conclusion, which left most of the major U.S. equity indexes near their recently established all-time highs. The expected profit taking, combined with a quiet day on the business beat and a relatively light day for earnings reports, did not give investors much of a reason to push the averages forward from their already lofty perches.
As we near the midday hour on the East Coast, the major indexes are not straying far from the neutral line. Still, there appears to be a bearish undertone to the session. Market breadth on both the New York Stock Exchange and the NASDAQ favors the bears, and nearly all of the 10 major equity groups are in the red. The biggest laggard is the energy category, which are being hurt by a modest pullback in oil prices in both New York dealings and on the Continent.
As noted above, the news this morning centered on the corporate world; there were no significant releases on the economy. On the earnings front, there are a few clear winners and losers. On the positive side, shares of Hasbro (HAS) jumped after the toymaker surpassed earnings expectations in the latest quarter; the showing was a stark contrast to the recent quarterly figures from fellow toymaker Mattel (MAT). Likewise, Tyson Foods (TSN) stock is up after the meat processor reported strong quarterly results, besting both the year-earlier bottom-line figure and the consensus expectation. In non-earnings news, the stock of high-end retailer Tiffany & Co. (TIF) is giving ground today after the company announced the departure of CEO Frederic Cumenal.
Meantime, the news from the nation’s Capital is not helping trading this morning. The market still appears to be uneasy about the recent executive orders on immigration and travel bans from seven nations in the Middle East and Northern Africa. Many of the world’s largest technology firms, including Alphabet (GOOG) and Amazon.com (AMZN), have condemned the executive orders, which were temporarily overturned by a Federal Court this week. This situation remains very fluid and may impact trading in the days to come, especially with the light schedule for the business beat this week.
Looking ahead to the second half of today’s trading session, the major equity averages, as noted are not far removed from the neutral line. However, market fundamentals, which includes the broad small-cap sector holding the biggest percentage loss among the major indexes, would suggest that the bears may be tough to beat during this week’s first day of trading. Investors should note that the European bourses, which started the week in positive territory, succumbed to selling in the later hours of the trading day. Against these backdrops, we would be mildly surprised if the bulls made much of a move today. 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 most recent five-day stretch of trading proved to be a rollercoaster ride for those long equities. Indeed, last week started with the major equity averages near record highs, but it did not take long for the sellers to emerge, as investors were unnerved by President Trump’s executive orders on immigration and trade. Our sense, though, was that the real reason for the selling was that market participants wanted to see some executive orders by the Trump Administration to help the economy, and there was growing sentiment that the promised corporate tax cuts may come later than expected this year. But after the early week selloff, the major averages stabilized and then moved higher, helped by some good news on the economic and earnings fronts, and the decision by the Federal Reserve to hold interest rates steady at this month’s FOMC meeting. These events, along with an executive order on Friday by President Trump to start easing the regulations on small businesses was the perfect cocktail for the bulls and the equity averages came roaring back to recoup the early week losses.
On Friday, the headline event came from the Labor Department, which issued its nonfarm payroll data for the month of January. That report showed jobs creation came in well above the consensus expectation of 160,000 to 170,000, at 227,000 positions. The strong job figures, along with the central bank’s decision not to tighten the monetary reins on Wednesday, gave a huge boost to stocks during Friday’s very bullish session. The Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index added 187, 31, and 17 points, respectively, with the index of 30 bellwether companies finishing less than 30 points shy of its all-time high, at 20,071. Investors clearly showed an appetite for risk, as the S&P 500 Index (or VIX) retreated significantly.
From a sector perspective, it was nearly a clean sweep for the bulls, with the only holdout being the basic materials stocks. The day’s leadership came from the economically sensitive financial, industrial, and technology groups. The aforementioned strong jobs data, a very good reading on nonmanufacturing activity from the Institute for Supply Management, and some supportive earnings news were the main catalysts behind those sectors. Conversely, the basic materials stocks, as a whole, finished more than 1% in the red, lead lower by the precious metals and mining issues. The strength of the U.S. dollar, on the labor report, and the desire for more risk on Wall Street weighed on the precious metals commodities.
Meantime, also helping the stock market in recent days has been a mostly supportive fourth-quarter earnings season. To date, the S&P 500 companies have reported earnings growth of roughly 9%, which is an increase from recent quarters. There is also a sense that the promised massive tax cuts from the Trump Administration will help corporate earnings going forward. On Friday, it was Dow-30 component Visa (V - Free Visa Stock Report) that was in the spotlight after reporting strong top- and bottom-line results after Thursday’s market close. The performance of Visa stock gave a big boost to the financial sector, which was the biggest gainer among the 10 major equity groups.
Turning to the week at hand, investors will get another batch of corporate earnings, highlighted by the latest quarterly results from Dow-30 companies Walt Disney (DIS - Free Disney Stock Report) and Coca-Cola (KO - Free Coca-Cola Stock Report). Conversely, it will be a light week of news on the economy, with the only report of note being the international trade balance, released tomorrow morning. The lack of news on either front may have the investment community looking for its cues from the White House and Capitol Hill, which seems to be providing daily fodder for investors since the election of Donald J. Trump in early November.
With less than an hour to go before the commencement of trading stateside, the futures are presaging a modestly lower opening for the U.S. equity market. The trading overseas is mixed so far today. The main indexes in Asia finished higher overnight, but after some initial buying on the Continent, the major European bourses are now trading notably lower, with the move to the downside being led by Germany’s DAX. A looming battle over President Trump’s executive order on immigration—the ban was over tuned by a Federal Court this weekend—may be at the heart of the profit taking we are looking at when trading kicks off on the homeland. 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.
