Before The Bell
In key news issued before the opening bell, the U.S. Labor Department reported that 684,000 Americans had filed for unemployment insurance in the latest week, the lowest total in a year. That compared with 781,000 the week before and with estimates of 730,000. The government also posted revised fourth-quarter GDP growth of 4.3%, up slightly from the previous estimate of 4.1%. Looking ahead, tomorrow will see the release of data on personal income and spending, as well as a report on consumer sentiment from the University of Michigan. The economy is a mixed bag these days, with decent metrics in general, but some cautions such as a weakness in new home sales.
The noticeable stumble in the technology sector as represented by the NASDAQ index was the story as Wednesday trading drew to a close. Sector rotation was evident again all day yesterday, with the Dow Jones Industrial Average up strongly for much of the session, before ending little changed on the day, while the aforementioned NASDAQ, while ahead early in the day, faltered badly later and ended the session off by more than 250 points. Stocks associated with the reopening of the economy provided what final strength there was. However, the economic news out yesterday was not particularly supportive, with mortgage applications declining and durable goods orders unexpectedly retreating. Interestingly, Treasury note yields, which had risen for most of the month, hurting stocks in the process, eased back down yesterday. But that decline did not help stocks. Now, looking ahead to the new session, stocks seem poised to open lower this morning, but now off the worst level seen overnight.
All told, the Dow, up by some 360 points during the early afternoon, would lose all of that advance by the close. The NASDAQ, as noted, was weak for much of the day and would end off by 265 points, and the S&P 500 would lose 21 points. Meantime, crude oil, which tumbled on Tuesday, rebounded sharply yesterday, as did gold. Among the varied sectors, energy, industrials, and materials rose, while communications services, consumer discretionary, and information technology led the way lower.
Among individual names Adobe Inc. (ADBE) gained on the day after reporting higher-than-forecast earnings and raising guidance. Finally, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen wrapped up their two days of testimony before Congress on the state of the U.S. economy. Both officials agreed that the economy was recovering faster than forecast, but that the comeback was far from complete. As such, Powell promised to continue to be supportive with regard to monetary policy.
In sum, the stock market continues to generally hang in there, but with price-earnings ratios still elevated, some caution is advised.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have a position in any of the companies mentioned.
