After The Close
The major U.S. equity indexes began the day in positive territory and appeared headed for an easy win, but uncertainty over trade talks with China erased most of the early gains.
News was light on the economic front today. The U.S. Census Bureau announced that new orders for manufactured goods increased 0.1 percent in January, matching December’s results, but falling short of expectations. Most of the gain was driven by durable goods (up 0.3%), particularly transportation equipment, as orders for nondurable goods slipped 0.2%.
Instead, news on trade relations with China continued to hold sway with investors. Word that China could be significantly increasing its purchases of U.S. agricultural products may have helped give stocks a lift earlier in the day. But then conflicting reports regarding the progress of the talks emerged, spurring the markets’ retreat in the afternoon.
Meanwhile, the Federal Reserve kicked off its two-day monetary policy meeting today. The lead bank’s concluding announcements on Wednesday are not likely to include word of a rate change. Rather, the focus will be on the Fed’s economic projections and what that means for potential rate increases and the ongoing runoff of mortgage-backed securities from its balance sheet.
At the closing bell, the 30-stock Dow Jones Industrial Average, after being up as much as 200-points, was down 26 points. The broader S&P 500 was down fractionally, and the tech-heavy NASDAQ fared the best of the lot, tacking on nine points on the session. Most of the 10 major market sectors ended the day in the negative territory, with utilities taking the biggest hit, falling 1.2%, while financials lost about half a percent. On the plus side, healthcare issues gained more than half a percentage point.
Elsewhere, light sweet crude prices slipped about half a percentage point, to around $58.85 a barrel. The commodity has gained 3% over the past five days, marking a high for the year, as OPEC and its allies appear committed to maintaining production cuts for at least another three months. Lastly, stocks on the European bourses spent most of the day in the green. Germany’s DAX led the pack with a gain of 1.1% while the UK’s FTSE 100 tacked on 0.3%, and France’s CAC 40 was up about a quarter percent.
– Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The stock market meandered about in largely positive territory in yesterday's initial session of the week, with a late burst of buying enabling the key indexes to close comfortably in the positive column. Strength in certain technology issues, including Apple Inc. (AAPL – Free Apple Stock Report) helped the Street to overcome slippage in a pair of high-profile names, notably Boeing (BA – Free Boeing Stock Report) and Facebook (FB). In the case of Boeing, it was an extension of the worries surrounding the 737 Max craft that spooked investors. As to Facebook, it was brokerage house downgrades.
The stock market started the session out in the minus camp, with modest losses in the Dow Jones Industrial Average quickly overcome by some buying as we passed the first few minutes of trading. That index, and the other large- and small-cap components, would then continue their uneven ascent for the balance of the session, finally concluding matters near the day's highs. All told, it was a decent start to an eventful trading week that figures to be highlighted by the pending Federal Reserve meeting.
As to that latter event, the Fed gathering will commence shortly and end tomorrow afternoon at 2:00 PM (EDT). At that time, there figures to be virtually no chance that the central bank will raise interest rates. The Fed has been steadfast in noting that it plans to be patient and not be in any rush to raise borrowing costs in the months to come. Our sense, therefore, is that it will be deliberate in its policy adjustments, following the course of the data releases in formulating its policy initiatives.
So, with no drama ahead of the monetary decision, there should be no major reactions tomorrow afternoon. That is possibly so, but not necessarily the case. That is, while the Fed is virtually assured to bring about no surprises on policy action, any drama as we await the decision is likely to come about from the accompanying interest-rate statement. Our thinking is that the bank will again press the case for being patient and data driven. With the economy continuing to show signs of sluggishness, there should be no surprises on that count.
In fact, we believe that the Fed will be very careful and slow to react on the monetary side. So, in the normal course of events, we would expect a calm decision process with little overt reaction following the statement's issuance. But we shall see. Otherwise, with little in regards to earnings on the docket, there should be total focus on the Fed, the economy, and the hoped-for trade deal with China, which has yet to be nailed down, but which likely will be secured within a month, if not less.
Returning to the day's trading, the session ended on a solidly bullish note, with the Dow, the S&P 500 Index, and the NASDAQ all ending up near the day's highs, with advances of 65 points, 10 points, and 25 points, respectively. It was a good way to start the week following what had been a strong five-day stretch in the preceding week of market trading. The small-cap Russell 2000 also did well, while Treasury note yields, which have come down in recent weeks, nudged up nominally.
Looking ahead to a new day now, we see that stocks were trading lower for the most part in Asia overnight, while in Europe, the leading bourses are now gaining ground despite further uncertainty with Brexit. Also of note, oil prices are rising anew, edging closer to the year's highs stateside; Treasury note yields are off slightly; and U.S. equity futures are climbing nicely as the Fed meeting gets ready to commence.
– Harvey S. Katz, CFA
