Before The Bell
It certainly has been a turbulent week for the stock market. Indeed, as we entered a new month yesterday, we find that the last three days of that just-concluded 28-day span had featured one large gain for the market and two major setbacks, respectively. To recap, Monday saw an outsized upturn for stocks on optimism about the economy and earnings, and a consensus that the Federal Reserve would pursue a gradual policy with respect to interest rates. However, on Tuesday, testimony before Congress by new Fed Chair Jerome Powell clearly upset traders, as he suggested a somewhat more aggressive monetary policy might be at hand.
Specifically, Mr. Powell intoned that the lead bank, sensing stronger economic growth and a modest step-up in inflation, might need to raise interest rates four times this year, rather than the generally expected three times. That admission sent stocks reeling that day, and the selling resumed on Wednesday, with the Dow Jones Industrial Average tumbling by 381 points on that day in a major selloff. Then, yesterday, Mr. Powell went before the Senate Finance Committee to expand on his rate views. In the meantime, we also have received key economic data this week, and these reports have had some influence.
For example, Tuesday saw an upbeat report on consumer confidence that seemed to confirm the Fed Chair's upbeat economic view, while Wednesday saw a slight downward revision in fourth-quarter GDP growth from 2.6% to 2.5%. Then, yesterday, the Institute for Supply Management reported a strong manufacturing report, with that survey showing an increase from 59.1 in January to 60.8 last month, with strength in employment, inventory accumulation, and pricing. In addition, the Commerce Department reported that personal income (up 0.4%) and consumer spending (up 0.2%) both rose in January.
These generally positive issuances caused some further nervous trading on Wall Street with stocks falling initially yesterday. To wit, the Dow moved out to an early loss of some 135 points. But then, the market rallied, with the blue chip composite erasing that deficit and rising by about 150 points. Thereafter, it lost all of that and moved in and out of positive territory for a brief time. As the afternoon began, however, the selling resumed--and in a big way--with the leading averages--especially the Dow--tumbling. What set things off, apparently, were remarks by the President to the effect that he would be implementing steep tariffs next week on steel and aluminum.
According to the President, the United States would set tariffs of 25% for steel and 10% for aluminum. Such policy announcements evoked fears of an impending trade war, as well as concerns about inflation and, therefore, interest rates. Interestingly, though, interest rates backed off, with yields on the 10-year Treasury note easing to 2.80%. Earlier this week, these rates had risen above 2.90%. However, the market saw only the doom and gloom, and stocks fell back sharply, with the Dow at one point falling almost 600 points before some buying commenced to pare the deficits to a degree.
But the buying was never really serious, and at the close, the stock market, while off its lows, was still sharply lower, falling notably for the third time in as many days. In all, the Dow shed 420 points; the S&P 500 Index, which is now below its 50-day moving average, tumbled 36 points; and the NASDAQ dropped 92 points. Losing issues also outnumbered winning stocks. Although the market is not yet in correction mode, as it was several weeks ago, the comeback put into play during the second half of last month, seems all but in the past.
Now, this volatile week concludes, with the markets across Asia tumbling in overnight dealings, led lower by steep losses in Japan on those tariff fears, while in Europe, the Continent's bourses are in retreat, especially in Germany. In other areas, oil prices are nudging; yields on the 10-year Treasury notes are at 2.81%, a trifle higher; and our market is suggesting a sharply lower open when trading resumes shortly, with the Dow again suggesting a triple-digit setback.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
