After The Close
Stocks were volatile again to close the week, with the Dow Jones Industrial Average trading in and out of correction territory for much of the session before ending sharply lower. Since late January, investors have seen the calm that pervaded the market during a remarkable bull run be disrupted first by fears of higher inflation and interest rates, and then by worries about escalating international trade tensions.
On Friday, there was also apprehension that President Trump would veto a spending bill that would avoid a government shutdown and provide funding for the military. The legislation ultimately was signed around midday on the East Coast, and that helped stocks for a while. But the anxieties that have gripped Wall Street resurfaced and hindered the Dow’s ability to bounce back from Thursday’s 700-point drubbing.
Turning to the economy, the Commerce Department reported that durable goods orders jumped in February, reversing January’s decline. Businesses appeared to gain confidence about investing after the passage of legislation that reduced corporate taxes. However, concerns have arisen that trade tensions will cause costs to rise, and dampen spending initiatives.
Other economic data showed little month-to-month change in new-home sales, as rising home prices and higher interest rates weighed on sales. Government-affiliate Freddie Mac reported yesterday that the average rate on a 30-year mortgage was up to 4.45%. Mortgage rates have followed bond yields higher this year. Even so, the housing market remains resilient, with sales for the first two months of 2018 up slightly versus the previous year.
Elsewhere, oil prices rose more than $1.50 a barrel to near $66 on the NYMEX, apparently in part due to the appointment of a national security advisor seen as hawkish on foreign policy.
At the close, the Dow was down 425 points; the NASDAQ was off 174 points; and the S&P 500 lost 55 points. The NASDAQ’s decline has been troubling, since the technology sector provided much of the leadership for stocks. Decliners outpaced advancing issues on both the New York Stock Exchange and the NASDAQ by a wide margin.
Given strong earnings prospects, we expect bargain hunters to step in at some point, but market sentiment currently remains unsettled.
— Robert Mitkowski
Before The Bell
It has been a very difficult week on Wall Street thus far for those long equities, punctuated by yesterday’s more than 700-point setback for the Dow Jones Industrial Average. The heavy selling pushed the index of 30-bellwether companies into correction territory, which is defined as a 10% decline from its 52-week high, for the first time since early February. The blue-chip index had plenty of company deep in the red yesterday, as the NASDAQ, S&P 500 Index, and the small-cap Russell 2000 fell 2.4%, 2.5%, and 2.7%, respectively.
The primary culprit behind the sharp retreat were tariffs unveiled by the Trump Administration, which are designed to punish China for intellectual property theft. The tariffs would levy $60 billion in retaliatory charges. What unnerved investors most was sentiment that the tariffs may lead to a trade war between the world’s two-largest economies, which would likely be a drag on both nations and the health of the global economy. On point, China responded overnight with reciprocal tariffs on $3 billion worth of U.S. imports. The news hurt the economically sensitive multinational companies the most, with notable declines in the shares of Boeing (BA – Free Boeing Stock Report), 3M Company (MMM – Free 3M Stock Report), and Caterpillar (CAT – Free Caterpillar Stock Report) during yesterday’s very bearish session. Overall, it has been a big week for the bears, which also were emboldened by Wednesday’s Federal Reserve monetary policy decision and accompanying statement and remarks from new Fed Chairman Jerome Powell. The central bank struck what was deemed a more hawkish tone with regard to monetary policies, which is typically not viewed positively by investors. That, along with the aforementioned tariff news, was a one-two punch that pummeled the bulls.
There were few places to hide in the equity market for traders, yesterday. It had been a rough session for the 10 major equity groups, save for the higher-yielding utilities, which benefitted from the “flight-to-safety” strategy used by rattled investors and shift of funds into bonds. The latter resulted in the biggest one-session drop for the 10-year Treasury note since September. The lower bond yields make higher-yielding utilities more attractive to income-seeking investors. All of the economically sensitive groups (i.e., basic materials, financials, industrial, energy, consumer discretionary, and technology) finished yesterday’s session well into negative territory, with the aforementioned fear that a trade war between the United States and China will lead to a weakening of the global economy.
Speaking of the economy, we will get some news later this morning from the business beat. At 10:00 AM (EDT), the Commerce Department is expected to release new home sales figures for the month of February. Earlier this week, we received a good reading on existing home for last month. The stocks of the homebuilding stocks have not performed very well so far this year after a terrific 2017. Concerns about inflation and higher lending rates, and the negative impact such may have on the housing market in the back half of this year has unnerved investors.
With less than an hour to go before the start of the final day of this very bearish week on Wall Street, the equity futures are presaging a lower opening for the U.S stock market. Not surprisingly, given yesterday’s news, the main indexes in Asia were down sharply overnight, while the bears are out in full force on the Continent today. Investors are clearly unnerved by the possibility of trade wars between some of the world’s largest economies, as volatility has spiked in recent session. The CBOE Volatility Index (or VIX) has jumped more than 30% in the last 24 hours. Stay tuned.
— William G. Ferguson
