After The Close
With investors weighing a litany of concerning developments from the trade and technology arenas, Thursday’s session was overwhelmingly controlled by the bears.
As has been the case for most of the week, regulatory concerns in the technology industry were a major factor in the full-day decline. A user data breach at Facebook (FB) has weighed on the social media company’s shares, and helped to stoke a modest selloff as the financial impact of potential government intervention weighs on the industry’s outlook. But although the NASDAQ 100 shed roughly 135 points at its midday low, the S&P 500 and Dow Jones Industrial Average fell further. The latter, in fact, had plummeted more than 700 points at its late-in-the-day low, putting the blue chip composite territory. Underscoring the volatile backdrop, the VIX reading crossed the 23-point threshold during the session. Overall market breadth favored declining shares by a 4.1-to-1.0 margin.
Indeed, while the tech-centric concerns certainly loomed, most of today’s weakness came from amplified fears of a trade war. The President’s announcement that the country would impose about $60 billion in tariffs on China due to alleged intellectual property theft. The potential fallout from this measure, as well as recent steel and aluminum tariffs, are likely to remain influences on the market for the foreseeable future. Accordingly, the basic materials, industrial, and financial sectors were among the worst performers today. Other than utilities, each of the major market sectors finished Thursday in negative territory.
In the final hour of trading, the bears’ grasp on trading tightened. Each of the major large-cap indexes saw their losses widen ahead of the closing bell, signifying to us the gravity of these trade fears. Additionally, new developments from the White House also figure to weigh on the averages in the coming weeks. In the past few weeks, the President’s chief economic advisor, Secretary of State, and lead lawyer in the Special Counsel probe have left their posts, highlighting the uncertainties related to forthcoming policies and their implementation. 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
Wall Street started the middle day of the trading week in snowy New York City to the downside, pulled lower, in part, by a sizable drop in the shares of food processing giant General Mills (GIS). That issue, off some 10% in the early going before edging off that low as the morning progressed, was hit hard after the company issued fiscal third-quarter earnings that fell short of expectations due to higher input costs. The processor also cut its profit forecast for the accounting year, as higher freight and commodity prices put pressure on results. Other food processor stocks fell as well.
The General Mills profit problems aside, the market was mainly occupied in the early going by anticipation of the FOMC meeting's conclusion. That get together, which ended at 2:00 (EDT) came off as expected with the lead bank voting to raise the federal funds rate by one-quarter of a percentage point. Going into the meeting, nearly 95% of the pundits had forecast such a rate hike. We now expect two additional rate increases over the course of the year, with an outside chance for a third such adjustment. In other news on this snowy day, the National Association of Realtors (NAR) reported an increase in sales of existing homes for February.
On point, the NAR reported that in spite of consistently low inventories and faster price growth, housing re-sales bounced back nicely last month after back-to-back monthly declines. In all, such transactions rose to 5.54 million units (annualized) in February, up from 5.38 million homes sold in January. Expectations had been for a nominal sales gain to 5.40 million houses. This report, which will be followed tomorrow by data on sales of new homes and comes about a week unprepossessing figures on housing starts and building permits, suggests that this core sector will remain highly resilient despite higher mortgage rates and sales prices.
Overall, though, the stock market continued to show mixed results, with the Dow Jones Industrial Average and the S&P 500 pushing downward, while the NASDAQ and the smaller-cap indexes moved forward, as the Fed decision loomed. Weighing on the industrials was the further slippage in the consumer stocks, most notably the food and household products issues, with Dow component Procter & Gamble (PG –Free Procter & Gamble Stock Report), which fell to a new 52-week low, among the morning's casualties. Meantime, as the morning wound down, the market started to improve measurably, with the S&P 500 going nicely positive and the Dow following along.
Little would change as the afternoon got under way, with most eyes still on the Federal Reserve and the 2PM rate decision. When that vote was announced, all of the indexes were solidly in the plus column on a hoped-for dovish statement by the new Fed Chair Jerome Powell. In all, the Dow had jumped ahead by some 130 points as the meeting adjourned. After the vote, which, as noted, had been expected, the Dow raced ahead to a 250-point gain, led by the financial stocks. Meantime, the Fed suggested two more rate hikes this year and three in 2019.
Buoyed by the Fed's gradual approach and growing transparency, the market remained higher for much of the afternoon, although the initial burst of bullishness subsided as we reached the final hour of the session. Then, after some back-and-forth as the session drew to an end, the market sustained one final selling push that left the three large-cap indexes in the red. The final total, for example, showed a 45-point setback in the Dow and a 19-point drop for the NASDAQ. At the close, higher oil prices had proven a boon to the energy and basic materials groups, while General Mills had help to weaken the consumer stocks.
Our sense is that after the initial euphoria following the rate move, investors took a second look and saw a fairly aggressive 2019 rate posture and opted to lighten up a little on the buying side. Meanwhile, looking out to a new day, we see that stocks were mostly lower in Asia overnight. In Europe, the bourses are now trending downward, as well. In other areas, oil, a strong performer so far this week, is showing some early softness on rising supplies in our country, while Treasury note yields, up to 2.91% after the Fed rate hike, are now passing hands at 2.86%. Finally, U.S. equity futures are showing steep early losses as a new day begins and following yesterday's rate hike.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
