After the Close
Stocks rallied in the final hour of Wednesday’s trading, with investor sentiment improving modestly compared to yesterday’s widespread selloff. The indexes were a bit more buoyant throughout, save for the Dow Jones Industrial Average, which spent most of the session in negative territory, with a closing loss of 7 points. But, while the S&P 500 and tech-centric NASDAQ traded in the black after initial softness in the opening hours, a bearish undertone due to persistent selling of small-cap equities held overall market breadth back. So, though the bulls enjoyed some streaks of momentum later in the day, we believe traders remain fixated on tomorrow’s healthcare vote.
With the Federal Reserve’s near-term monetary policy broadly outlined and corporate earnings season all but over, investor focus has recently turned to developments in Washington. Specifically, the implementation of the Trump Administration’s economic policies, was been the major driver in the market’s bullish tone since November, has weighed on recent trading. The lead up to Thursday’s healthcare vote by the House of Representatives has been a contentious process, causing many to worry that a delay in approval could end up pushing back the timing of certain other core promises from the campaign trail, like tax reform.
Some mixed signals from the business beat also contributed to the morning softness. Existing home sales decreased 3.7% in February, according to the National Association of Realtors, lagging consensus expectations. But, we believe investors warmed up to the release as the day wore on, as demand continues to mount for new homes heading into peak seasonal construction season. This trend is underscored by a two-week reduction in the average amount of time homes were on the sale market, from 59 to 45. Accelerated construction activity ought to help address the sales volumes and inventory concerns as the year progresses.
Elsewhere, the price of domestic crude oil dropped to their lowest level of the year. The U.S. Energy Information Administration indicated stockpile had climbed by about 5 million barrels last week, nearly doubling the expected 2.8 million rise. In turn, this has put additional pressure on OPEC to extend its drilling accord past the upcoming June expiration date. The measure reportedly boasted a 98% adherence rate in January and February, helping to boost investor sentiment, and oil prices, in the face of the growing reserves.
In all, the S&P 500 and NASDAQ finished the day higher, but well-below their yesterday levels. Because tomorrow’s trade will largely center on updates from the Capitol as the vote occurs, we anticipate another day-long tug of war is in the cards. – Robert Harringtoin
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:35 AM EDT
After the worst day in quite some time for those investors long equities yesterday—the broader S&P 500 Index broke a 109-day stretch of not posting a loss of 1% or more—the major equity averages started the session in mixed fashion, but with a definite bearish undertone. Aside for the NASDAQ, the major indexes quickly found themselves in negative territory—and even the tech-heavy NASDAQ had briefly succumbed to the overall bearish mood. Driving stocks lower are concerns that a likely contentious battle on Capitol Hill over healthcare reform will likely push back the time table for President Trump’s promised tax reforms. The Trump agenda, which pushed the market notably higher, along with favorable economic and earnings data, seems to be weighing on stocks at this time.
As we near the midday hour, most of the major indexes have modestly extended yesterday’s sharp losses on the aforementioned President Trump agenda concerns. The NASDAQ, on the strength of a partial rebound in technology and healthcare groups, is in positive territory, but the other major averages are still holding losses. The Dow Jones, down 238 points yesterday, is shedding another 56 points so far today. It also should be noted that there is notable weakness in the broader small-cap sectors, as most of the smaller-cap companies will be affected greatly by the outcomes of healthcare and tax reform in the coming months and perhaps years. Overall, the bearish mood continues on Wall Street, with a plurality of declining issues on both the New York Stock Exchange and the NASDAQ.
From a sector perspective, the bears are once again in the financial, energy, and consumer discretionary sectors. The flattening of the yield curve—and most notably the drop in the yield on the benchmark 10-year Treasury note, is pressuring the financial stocks, especially those of the banks. Although that group is not in correction territory yet after a big post-election run up, the sector has fallen sharply in recent days on yield curve concerns. Likewise, the energy stocks are weaker on the recent drop in crude oil prices both in New York dealings and on the Continent. With regard to both sectors, investors will be watching to see where the 10-year note yield and oil prices are going, eying respective marks of 2.30% and $45 a barrel. Movement toward those levels would bode ill for both groups. The consumer discretionary sector is being hurt by a weaker-than-expected quarterly report from Dow-30 component and shoe and apparel giant NIKE (NKE - Free Nike Stock Report) this morning. The retailing giant posts disappointing top-line results, and shares are selling off sharply in response. Conversely, we are seeing a slight recovery today in the technology sector, with a move higher by the computer hardware and software groups giving some support to the technology area.
Meantime, we did get some important economic news this morning. A half-hour into the trading session, the National Association of Realtors reported that existing home sales fell 3.7% sequentially in February, missing the consensus expectation. However, sales of existing residences did rise 5.4% year over year. The lack of available housing inventories was cited as the reason for the month-to-month decline. That lack of supply on the market is pushing sales prices higher and hurting sales volume. That said, it should be noted that demand remains very strong—the average home was on the market for 45 days in February, versus the recent high of 59 days—and this should keep the housing and homebuilding market on the upturn in the coming months. All in all, it was a decent report on housing, despite the disappointing headline figure. Still, shares of the major homebuilders, which fell yesterday, are again in the red this morning.
Looking ahead to the second half of the session, market fundamentals are indicating that it may be two-consecutive productive sessions for the bears. With the vote by the House of Representatives vote on healthcare taking place tomorrow, we don’t see any catalysts to give the bulls a boost in the second half of today’s session. The overhang of the healthcare reform concerns, along with the aforementioned weakness in both bond yields and oil prices, will likely cast a shadow over trading as we move towards today’s closing bell. Stay tuned. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before the Bell
After an unimposing showing to start the week on Monday, and mixed activity abroad in the overnight sessions in Asia and Europe after the U.S. close on Monday, stocks on our shores started the session to the upside yesterday. To wit, within minutes after the opening bell, the Dow Jones Industrial Average had risen by some 65 points, while similar-sized gains were posted by the S&P 500 Index and the NASDAQ. The latter, in fact, rolled to another record high in the process, climbing further above 5,900. It looked for a brief span as though we would have a Monday-Tuesday reversal.
Behind the initial surge were solid gains in the information technology group, with Apple (AAPL - Free Apple Stock Report) shares rising to yet another all-time high, with its early gains carrying that stock to near $143 a share before a subsequent downtick. That issue had traded below $90 in the past year. Traders also were encouraged by higher oil prices. The increases in oil followed a series of price declines recently, and may well have reflected some optimism about the possibility of OPEC supply cut extensions. In all, WTI crude rose above $49 a barrel in early New York postings.
However, this upbeat sentiment could not last even for the first hour. In fact, within that span of time, the Dow and the S&P 500 had given up their gains and turned negative, while the small- and mid-cap composites had fallen notably into the red. It would seem that with the uncertainty on our shores in the political arena, most assuredly on health care reform, there was not enough positive sentiment to prove sufficiently offsetting. So, stocks faltered and did so significantly. In fact, before noon in New York, the Dow was off by some 200 points. And it would get worse from there.
Indeed, the Dow, after attempting to briefly pare its loss to fewer than 150 points, resumed its decline by 2:00 in the afternoon, with that 30-stock composite tumbling to a loss of just over 225 points. The fear is that if health care goes down to a defeat, that the President's more popular tax reform package would be delayed, at a minimum. An additional problem, meantime, is the further slump in oil prices, which after a brief flurry early in the day, resumed its decline on oversupply concerns. But the big constraint was politics and the sudden uncertainty regarding the President's reform package.
Stocks then continued to slump over the balance of the afternoon, with the financial equities leading the move lower. The big loser on the Dow, meantime, was brokerage house behemoth Goldman Sachs (GS - Free Goldman Sachs Stock Report), which was down some 3% in afternoon dealings. In addition, apparel maker Under Armour (UAA), already slumping badly in recent months, fell further on the session. As was the case earlier in the day, nine of the 10 leading groups were lower, with just the utilities bucking the downtrend. The basic materials and financial stocks were the weakest groups. Also, losing stocks remain well ahead of gaining issues on the NYSE.
The equity market then weakened into the close, with the Dow again falling back to a loss of more than 200 points. As before, the NASDAQ was a bigger percentage loser late in the day, with the S&P Mid-Cap 400 and the small-cap Russell 2000 even larger casualties. It was the biggest selloff in 2017 to date. All told, at the close, the blue chip composite was off 238 points; the S&P 500 Index was lower by 29 points; and the NASDAQ had surrendered 108 points. There were few places, save for the utility group, for the bulls to hide, even as bond yields fell on stronger Treasuries.
Looking out to the middle day of the week, we see that yesterday's sharp retreat in New York is having an impact overseas. On point, stocks in Asia were notably lower overnight, with Japan's Nikkei tumbling more than 2%, while the story is similar thus far in Europe this morning, where all eyes are logically on Washington. As to our markets, the early read on our futures is mixed after yesterday's selloff. Elsewhere, oil is moderately lower, as are interest rates on Washington worries. In sum, the story is on the legislative front, where the ebb and flow of negotiations in Washington will likely continue to weigh on trading here. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
