After the Close
The Dow Jones Industrial Average broke its eight-day slide on Tuesday during a broad-based rally that saw each index charge higher. Blue chips and small-caps alike were swept up in the bullish resurgence, which persisted from about 10 A.M. until the final hour of trading. A surprisingly positive consumer sentiment reading catalyzed the mid-morning turnaround, perhaps reminding investors of the bigger picture in the wake of last week’s disappointing healthcare update from Washington. True, the 125.6 survey reading from the Conference Board is the highest level since December of 2000. The bulls took this news and barely looked back, with both the Dow and S&P 500 registering wide increases. Advancing shares outnumbered decliners nearly 3-to-1 when the closing bell rang.
In recent sessions, looming uncertainty from the Capitol has somewhat dampened enthusiasm for the Trump Administration’s economic policies. The averages slipped in the lead up to Friday’s ultimately failed healthcare vote. On Monday, the first full day of trading after the bill was pulled from Congress, the market tumbled drastically at the open before coming back as the day progressed. While we do not view recent stagnation as the beginning of a wider correction, it does underscore the growing clamor amongst some investors for the implementation of core economic reform proposals.
Looking at today’s sector-by-sector performance, it is evident that investors remain optimistic that President Trump can follow through on his promises to reform the tax code and deregulate industry. Basic materials and financials, two of the main beneficiaries of the post-election rally, were among the biggest gainers on the day. Industrials added over 1% in market value, while technology and cyclical consumer goods also turned in respectable advances. Healthcare and telecom struggled, on a relative basis, as did the utility sector.
Meanwhile, oil prices also improved today, with U.S. crude per-barrel rising $0.64. Still, there remains plenty of concern, both domestic and foreign, regarding stockpile levels. Overseas, most market-watchers are cautiously optimistic that OPEC can extend its drilling limit through the end of the year by the current accord’s June expiration date. Even if the cartel can achieve another agreement, we wonder if the same 98% adherence rate can be sustained as pressures in the industry mount. Accordingly, the energy sector added more-than 1% on an aggregate basis in tandem with today’s rebound.
So, with a much-needed win for the bulls in the books, we see that all three indexes remain lower than their month-long highs. Whether or not today’s activity lends itself to additional momentum in the coming days will largely depend on sentiment from the Hill. With a large share of investor focus centered on tax reform and infrastructure spending, we expect profit takers to continue to take advantage of the still-elevated valuations when the opportunities arise. - Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:50 AM EDT
Fresh off an early swoon in the equity market yesterday morning, and a subsequent comeback to end matters on a mixed note for the full session, stocks began today's trading in uneven fashion, as well, only to see a quick burst of buying some 30 minutes into the day's action. The reason for this subsequent uptick was the report of a surge in consumer confidence this month. On point, at 10:00 AM (EDT), the Conference Board reported that its survey on consumer confidence, which had been expected to ease slightly in March, gained notably for the month.
Specifically, confidence, which had increased in February (and, in fact, was revised higher in the latest survey), came in at 125.6. That was a gain from the prior month's 116.1, initially tabulated at 114.8. Also, two offshoots of this aggregate survey, the Present Situation Index (which rose from 134.4 to 143.1) and the Expectations Index (which jumped from 103.9 to 113.8) added to the month's strength. In all, this was the highest level for this Index since December of 2000, when it had registered a reading of 128.6.
According to the Index, consumers' appraisal of current conditions improved considerably in March; the public also was considerably more optimistic about the short-term outlook. Finally, consumers also were feeling better about the outlook for the labor market. This surprisingly potent report augurs well for the economy's overall growth in the second quarter, which we already see as improving on the order of 2.5%, or so, following what we believe was about a 2% rate of gain in the opening span.
So, armed with this strong survey, the buyers returned to the market. To be sure, the uptick was not overwhelming or universal early on, with the NASDAQ, the S&P Mid-Cap 400, and the small-cap Russell 2000 all lower for part of the morning. However, the Dow Jones Industrial Average, down for eight straight sessions, showed modest gains, adding some 30 points early, while the S&P 500 Index edged into the plus column, as well, along with a majority of the issues trading on the NYSE.
The pickup in the market continued over the balance of the morning, with the Dow tacking on close to a triple-digit point gain at one time, while comparable strength was shown by the S&P 500 Index, on solid improvement in the basic materials, energy, and financials. All told, as we reached the noon hour in New York, six of the 10 leading sectors were in positive territory, while among individual stocks, gainers held a two-to-one lead, suggesting that the rally cited above should continue into the afternoon.
In all, the Dow heads into the afternoon holding onto a 70-point advance; the S&P 500 Index is ahead eight points; and the NASDAQ, under some pressure early on, is now in the plus column to the tune of a dozen points. The smaller-cap composites also are higher now, after a halting start. It would seem that the good news on the economy, in the form not only of the consumer confidence reading, but also a nice uptick in the S&P Case-Shiller home price index, is helping to counter lingering concerns about the inability to pass health care reform. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before the Bell
Following the worst week so far in 2017, and on the heels of notable price declines in Asia overnight (especially in Japan) and in Europe earlier in the morning, U.S. stocks again moved sharply to the downside at the opening bell. In fact, within minutes of the commencement of trading, the Dow Jones Industrial Average was off more than 180 points and the NASDAQ was down some 60 points. Another major casualty was the small-cap Russell 2000, which early on had shed about 20 points. It was an across-the-board dumping of equities.
Behind this selloff was apparent disappointment in Friday's decision by the Republican-led House of Representatives to pull the compromise revision of the Affordable Care Act. That replacement failure is hanging somewhat heavy on Wall Street, as it casts doubt on the ability of the Congress and the White House to fashion even more popular efforts on the tax code, deregulation, and the infrastructure. Much of the multi-month rally in the equity market has come on expectations that the President Trump-proposed business-friendly legislation would become law.
However, now, with some of those hopes seemingly delayed, or worse, stocks have come under pressure. To be sure, the pullback has been brief and thus far contained. But there are mounting concerns in some quarters that the upward momentum has been broken. Meantime, the worst of the morning's selling had passed by the first hour of trading, but the market remained decidedly lower, nonetheless. Most of the equity groups were showing losses, while decliners easily led gainers among individual stocks.
As we approached the noon hour in New York, however, the buyers started to return, and a one-time 180-point slide in the Dow was whittled away to fewer than 60 points, while the NASDAQ approached the breakeven mark, with a few tech stocks, such as the semiconductors, spearheading the rally. That nascent tech comeback shortly enabled the NASDAQ to fully erase its early loss, and by early afternoon that composite had tiptoed into the black. It then built on this gain as the afternoon moved along.
The market's dichotomy then continued through the latter part of the afternoon and into the close, with the Dow's loss generally holding in the 30-to-50-point range, while the NASDAQ's gain was mostly in the 15-to-25-point area. The S&P 500 was little changed, meantime, while the small-cap Russell 2000 had nudged into the plus column near the close. Although sentiment had not changed all that much, earlier fears of a meltdown had subsided sufficiently for the stock market to establish some equilibrium.
As the closing bell sounded, the comeback had carried the stock market to a mixed close, with the NASDAQ (up 12 points) and the small-cap Russell 2000 (ahead four points) both higher, but the Dow (off down 46 points) and the S&P 500 Index (lower by two points) were each modestly in the red. Further underscoring the day's mixed conclusion, which included the Dow's eighth loss in as many sessions, was the fact that six of the 10 equity groups were lower, with health care the lone notable winner, while a few more stocks were up than down on the day.
Looking out at a new day now, and with the late flurry of buying yesterday raising hopes that Wall Street can break the Dow's eight-day losing streak, we see that equities in Asia were mostly higher overnight, while in Europe the major bourses were pressing upward, as well. In other key developments, oil is up a bit so far; bond yields, which pulled back yesterday, are flat at this time. Finally, our futures, off sharply ahead of yesterday's early meltdown, are now nominally higher in early dealings this morning. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
