After The Close
The U.S. stock market broke a recent streak of bearishness on Monday, with each of the major indexes surging on their way to posting significant full-day bounce backs. The NASDAQ, last week’s most-challenged grouping, led the way today, increasing by well over 200 points as the closing bell neared. The Dow and S&P 500 were also notably strong. The former jumped over 650 points in the late afternoon, a reflection of the tech-centric rebounds by Apple (AAPL –Free Apple Stock Report) and Microsoft (MSFT– Free Microsoft Stock Report). Still, the large-cap composites remain well below their historic highs, thanks to elevated, and persistent, volatility over the past two months.
While we believe the breadth of the uptick can be attributed to investors taking advantage of lower entry points, an ostensible ease in concerns on the geopolitical front also contributed to the daylong positivity. That is, fears of a trade war between the U.S. and China have partially subsided. The prospect weighed heavily on sentiment last week, stemming mostly from the former’s steel and aluminum tariffs and recent announcement of a $60 billion penalty on the latter for alleged intellectual property theft. Simply put, a trade war is in nobody’s best interest, and investors appear to be cautiously optimistic that cooler heads will prevail.
Today’s bullishness was not limited to large-cap equities, however, as evidenced by the Russell 2000’s roughly 1.5% expansion during the session. In fact, advancing stocks doubled declining issues. Buying was especially widespread in the technology, financials, and basic materials sectors, though each of the ten major industry groups were steadily in positive territory from bell to bell.
Meanwhile, domestic crude oil shed some value today. The $0.33 per-barrel loss follows a sizable weekly gain, which saw the commodity rise to three-plus year highs. Tensions between Saudi Arabia and Iran, as well as ongoing adherence to OPEC and its allies’ drilling accord, ought to remain positive influences in the oil trade. Conversely, concerns about domestic production levels should keep the gains somewhat in check until further fundamental improvements are realized.
Looking ahead, trade tensions and the recent decision by the Federal Reserve to raise interest rates will be the primary influences on trading this Good Friday holiday-shortened week. With corporate earnings a few weeks away, traders will also be busy digesting a slew of economic updates, from consumer confidence to the final fourth-quarter GDP revision.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
Last week was a five-day stretch that investors of long equities would like to forget quickly. For nearly the entire span, the bears were in complete control. The market opened the week to the down side on Monday, then went through a volatile patch prior to the Federal Reserve’s monetary policy announcement on Wednesday afternoon, before selling off considerably over the final two trading sessions, punctuated by a nearly 1,200-point decline for the Dow Jones Industrial Average. On Friday, the market was looking at a partial recovery after Thursday’s sharp selloff, but the bears returned late into the session to once again push the major equity indexes markedly lower. The Dow 30, tech-heavy NASDAQ, and the broader S&P 500 Index fell 425, 174, and 55 points, respectively, on the final trading of the dour week on Wall Street, with the market now sitting in correction territory, which is defined as down 10% or more from its 52-week high.
The market was rattled by two events last week, most notably the announcement of another bunch of tariffs by the Trump Administration. The latest tariffs were against China for its intellectual property thefts against the United States. Investors are worried that the tariffs will bring retaliation from the United States’ major trading partners, and on point China implemented its own tariffs against imports from the United States On Friday. The escalating worries that deteriorating trade relations between the world’s two-largest economies will hurt the global economy upset investors around the globe and sparked big setbacks for the world indices to end last week. Of note, the stocks of large multinational companies, including those of blue-chip companies Caterpillar (CAT – Free Caterpillar Stock Report), Boeing (BA – Free Boeing Stock Report), and 3M Company (MMM – Free 3M Stock Report), were hard hit by the tariff news and escalating trade war. Likewise, the market did not like commentary from the Federal Reserve following its decision to raise short-term interest rates by 25 basis points on Wednesday. New Fed Chair Jerome Powell’s comments were viewed as hawkish, and the market weakened on his remarks. Historically, equity investors don’t respond well to news of monetary tightening and that certainly was the case last week.
Meantime, the news from the business beat was once again positive. On Friday, before the market opened, investors learned that durable goods orders rose nicely in February. Then at 10:00 AM (EDT), the Commerce Department reported sales of new single-family houses in February came in at a seasonally adjusted annual rate of 618,000 units, which was 0.6% below the revised January rate of 622,000, but 0.5% above the February 2017 estimate. Overall, it was a solid report on the housing market, and another sign, along with a decent data on existing home sales earlier in the week, that the housing and homebuilding sectors, two key cogs in the nation’s economy, are doing well.
Looking at the week at hand, investors will clearly be focused on the same issues that drove trading last week, including international trade tensions, the recent decision by the Federal Reserve, and the economy, as we are still a few weeks from the commencement of first-quarter earnings season. This week on the business beat, we will get a number of important reports, including the latest data on consumer confidence and personal income and spending and the final revision to the fourth-quarter GDP estimate. There will also be prepared speeches from a few Federal Reserve leaders, including Fed President William Dudley later today. Investors should note that the U.S. equity and bond markets will be closed this Friday in observance of Good Friday.
With less than an hour to go before the commencement of the new, abbreviated trading week stateside, the equity futures are indicating some bargain hunting when the U.S. stock market opens. The move higher is being driven by some sentiment that the U.S. and China will eventually be able to solve their trade differences. That said, we expect trading to remain volatile over the next fortnight, as investors focus on Washington D.C. and the Federal Reserve, with earnings news still light. So far today, trading has been mostly positive overseas, with gains in Japan’s Nikkei and Hong Kong’s Hang Seng overnight being followed by an across-the-board rally on the Continent. 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.
