After The Close
Though the major indexes were mostly mixed on Thursday, overall market breadth favored declining shares by a roughly two-to-one margin. Softness was felt in nearly every market sector, with energy shedding the most aggregate value. Looming worries about a potential trade war remain a major influence over trading, as the implementation of the White House’s steel and aluminum tariffs has mostly offset intermittent positive tailwinds (such as last week’s auspicious employment and wage growth update) in recent weeks.
Looking at the large-cap indexes, a solid morning performance reversed for the S&P 500 and NASDAQ in the afternoon. The selloff stemmed from a report in the New York Times revealing that the Special Counsel had subpoenaed records from President Trump’s businesses. The news item served to destabilize an already volatile market, which has seen each of the major composites shed value since Monday. Today, only the Dow Jones Industrial Average managed to stay in positive territory through the selling pressure, thanks in large part to strength in UnitedHealth Group (UNH – Free UnitedHealth Group Stock Report) and McDonald’s Corp (MCD – Free McDonald’s Stock Report).
Meanwhile, U.S. crude oil recovered some value today. Still, the $0.23 per-barrel gain was tempered by rising domestic inventory levels. This headwind has kept the bulls in check for some time now, with favorable overseas production output and high demand from China being partly offset by the stateside concern. The International Energy Agency reported that while the global demand environment is still likely to accelerate in 2018, supply has outpaced the growth.
Overall, the market was unable to break its losing streak on Thursday, save the Dow, which was fairly resilient. The S&P 500 and NASDAQ were unable to register meaningful advances, however, with both finishing the session in the red. The bulls will attempt to recoup some value during tomorrow’s week-ending session, though we suspect tariff-related speculation will remain the dominant story. Stay tuned.
– Robert Harrington
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 unprepossessing market performances to start the week on Monday and Tuesday, in which the market declined modestly both days, stocks began the Wednesday session to the upside. In all, the early drift higher saw the Dow Jones Industrial Average ascend some 125 points, while the NASDAQ was initially better by more than 30 points. However, as was the case to start out the week, the early morning strength could not be sustained, and as we neared the one-hour mark of trading, the Dow had turned negative, while the S&P 500 and the NASDAQ were clinging to narrow advances.
Once again, it was concerns about the recent announcement of tariffs on steel and aluminum that had spooked the bulls, as they continued to fret about higher costs and a possible trade war. Countering such worries, and helping to fuel the recent comeback in the stock market following the February correction, has been persisting strength on the economic and corporate earnings fronts. Meanwhile, the economy, while continuing to press forward, is still seeing some occasional headwinds, such as yesterday's release of sluggish retail spending figures for February.
Specifically, the government reported that retail sales had surprisingly dipped 0.1% in February; a gain of 0.3% had been forecast. Weakness in auto demand, along with further softness at department stores, contributed to the unimposing performance. On the other hand, the latest month was helped by solid showings at building supplies dealers, sporting goods retailers, clothing stores, and over the Internet. At the same time, the Labor Department noted that producer prices had advanced 0.2% last month, which was right in line with expectations. The benign pricing data helped the market early on.
Meanwhile, the stock market continued to weaken into the lunch hour, with the Dow's decline suddenly picking up speed in late morning, setting the stage for a morning-worst setback in that composite of just over 300 points. Also affecting market sentiment was the ongoing series of firings and resignations in the Trump Administration, with last week's exit of chief economic advisor Gary Cohn followed by Tuesday's high-profile termination of Secretary of State Rex Tillerson heading the list of personnel changes to upset the bulls. Ironically, a sudden drop in Treasury yields also worried the Street raising fears of a recession.
On this latter count, we think such concerns, borne, most likely, from the weaker retailing data, are very premature. Still, the drop in yields was one more reason for optimism in the market to lessen, at this point. Indeed, we still think that the most likely outcome is that the economy continues to improve at a modest pace this year. That, along with the lower tax structure, should produce nicely higher corporate earnings in the coming few quarters. In the meantime, after that midday swoon, stocks stayed in the minus column as the afternoon progressed.
Things would not change much as the session wound down, with each of the indexes closing off, but with the Dow shedding twice as much from a percentage point as the other composites, with the high-flying aerospace giant Boeing (BA – Free Boeing Stock Report) leading the way lower among the blue chips with a loss of 2.5%. That company is a big user of metals and, therefore, vulnerable to the higher tariffs. In all, the Dow ended matters off 249 points--that index's third setback in as many days this week following Friday's outsized market gain on the jobs report. In all, the Dow lost exactly 1.00% on the day.
Looking ahead to the penultimate session of the week, we see that major indexes were generally higher across Asia in the overnight hours, while in Europe, the leading bourses are trending upward, as well, at this hour. Moreover, Treasury note yields, which closed at 2.82% in dealings yesterday, now are passing hands at 2.81%. Finally, U.S. equity futures are pointing to a positive opening on Wall Street this morning, as the stock market seeks to break its modest three-session losing streak.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
