After The Close
Stocks opened on the first day of trading in March in strong fashion, but some of the gains faded at mid-morning on weaker-than-expected economic data. The market regrouped in the afternoon, though, and finished nicely higher.
Investors appeared to be optimistic that a trade deal with China might be nearing as the week on Wall Street headed toward a close, and bid up the Dow Jones Industrial Average by more than 200 points not long after the opening bell on Friday.
About an hour into the session, though, the widely watched release of the Institute of Supply Management’s manufacturing index proved underwhelming. The ISM data for February fell short of expectations, and pointed to a slowing trend in business conditions.
There may have been some hope that the ISM figures would come in better than prognosticators had forecast, in similar fashion as yesterday’s surprisingly strong fourth-quarter GDP number did.
GDP is estimated to have accelerated at a 2.6% pace for the fourth quarter of 2018, or better than estimated. But the reading for the final three months of last year did not match the 4.2% and 3.4% growth rates for the second and third quarters, respectively.
The decelerating growth trend may continue in the first quarter of 2019, with GDP advancing perhaps 1.5%-2.0%. Investors are becoming a bit concerned that a less robust business backdrop, as this morning’s ISM reading indicated, could affect earnings and stock prices.
Still, at the end of the day the bulls kept the upper hand. The Dow Industrials climbed 110 points; the NASDAQ gained 63 points; and the S&P 500 added 19 points. The number of advancing stocks easily outpaced decliners, too.
Among individual names, shares of retailer The Gap (GPS) jumped when the company disclosed plans to spin off its Old Navy brand.
In other markets, oil prices pulled back more than 2% in New York trading, to around $55.75 a barrel for the domestic benchmark blend. The retracement may have been due to technical factors, although the weak manufacturing data also might have played a role.
Oil quotations have risen nicely in recent weeks as OPEC and its cohorts seem determined to clean up excess supply by limiting production.
Overall, stocks did well today despite less-than-compelling economic data.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Specifically, the nation's economic output gain of 2.6% was ahead of consensus expectations of 2.2% and the Value Line forecast of 2.4%. Still, that result was down from the third-quarter advance of 3.4% and the even stronger April-to-June GDP rise of 4.2%. In specific terms, the final-quarter gain in GDP reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, inventory restocking, and federal government spending. Still, these were a quarter-to-quarter deceleration in inventory building and consumer spending.
Looking ahead, we would expect an even lesser increase in GDP--perhaps 1.5%-2.0%--in the current quarter, reflecting a further slowing in some core economic categories and the impact from the government shutdown in January. Meantime, after the initially weak showing, the market did attempt to rally anew as we entered the second hour of trading, with the Dow moving briefly into plus territory, while the other averages pared their losses. This mid-morning improvement didn't go all that far and the Dow would go back and forth into the green and the red for a short span before falling once again.
As to other influences, the market was under some lingering pressure after the U.S. Trade Representative testified before the U.S. House of Representatives that China needed to do more to ink a trade deal with our country. Also, some traders were disappointed that the talks between the United States and North Korea broke off unexpectedly and suddenly earlier in the day. Some individual companies also weighed in with less-than-compelling results. Thus, we were looking at modest losses, overall, as we passed the 90-minute mark of the trading day.
An overbought stock market then waxed and waned though the balance of the morning and into the afternoon, with the Dow Jones Industrials staying below the breakeven line throughout, but often just being gingerly to the downside. Losses also were tallied throughout much of the afternoon by the S&P 500 Index, while the NASDAQ, up for much of the afternoon, eased into the final bell. When all the numbers were in, the Dow lost just shy of 70 points and the NASDAQ was off by 22 points. Bucking the lower trend, though, were oil prices and Treasury note yields, both of which gained on the day.
Looking out to the first day of March, which seems likely, from a weather standpoint, to come in like a lion for much of the country, and ahead of key releases on consumer sentiment and ISM manufacturing activity, the major indexes across Asia were nicely higher. In Europe, the bourses are tracking strongly upward, as well. Also, oil prices, as noted, up again yesterday, now are climbing further and Treasury note yields, which rose to 2.71% yesterday, now are continuing to hold at 2.71%. Finally, after yesterday's undistinguished close, the U.S. equity futures are suggesting a sharply higher opening this morning on apparent optimism about the economy.
