Before The Bell
The rotation out of growth stocks, most notably high price-earnings technology stalwarts, resumed yesterday, driving the NASDAQ to a closing loss of 409 points or 3.0%. The small-cap Russell 2000 Index also gave ground, tumbling 2.9%, while lesser percentage setbacks were suffered by the Dow Jones Industrial Average and the NASDAQ. Overall, only the financial sector gained ground, with major banks such as JPMorgan Chase (JPM) leading the group higher. Every other sector gave ground, with energy stocks the weakest group. Thus far this morning, the futures are suggesting modest bounce upward when the market opens for trading.
Meanwhile, in economic news yesterday, there was a report of a big jump in the Philadelphia Fed manufacturing survey, with a corresponding notable rise in the prices paid component. Also, data showed that initial jobless claims rose by 45,000 to 770,000 in the latest week, easily surpassing forecasts of a dip to 700,000. But the big news was another surge in Treasury note yields, with the 10-year note rising to a 12-month high of 1.75%. Just a year ago, the yield was at 0.50%. Worries about rising inflationary pressures are behind the ongoing advance.
All told, U.S. equities finished near session lows following some midday strength in the blue chips that could not hold. The impetus for the selling was the relentless rise in Treasury yields. The jump in yields came in spite of the Federal Reserve indicating on Wednesday that the federal funds rate would probably remain near zero through 2023. Also of note, the U.S. dollar moved higher; the leading economic indicators notched its 10th straight monthly advance; and, as noted, manufacturing activity gained in the Philadelphia region.
Meantime, in earnings news, Dollar General Corporation (DG) posted fourth-quarter earnings of $2.62 a share, versus consensus forecasts of $2.72. It also issued lackluster guidance, contributing to a sharp setback in the stock of the retailing giant. Conversely, shares of retailing behemoth Williams Sonoma (WSM) gained ground after the company posted better-than-expected results.
Finally, there is little on the news docket today, as a heavy report week come to a close. But next week will bring reports on existing home sales, new home sales, orders for durable goods, and personal income and spending.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
