After The Close
The market started trading higher today, as initial jobless claims came in lower than expected and caused the indices to rise quickly. The Dow Jones Industrial Average was higher by around 118 points at the peak, while the S&P 500 rose by as many as 14 points. However, this initial market action was short lived, and the markets soon turned lower for a spell, as global growth fears took root. The Dow was down by as many as 50 points during the midday, but after hitting an oversold condition there, the market reversed course and started a new wave of buying, and stayed in the plus column throughout the course of the session. Note that this move did not eclipse the prior highs. All told, the Dow wound up higher by 92 points, while the S&P 500 was up 10 points.
Additionally, market breadth was quite positive as advancers outpaced decliners by a 1.9-to-1.0 ratio. Materials stocks were among the best performers on the day, while utilities were among the weakest.
In commodity news, oil prices were lower today, as fears increased about higher output from OPEC in the coming months. However, this bearish market action did not last long, and the commodity gained back most of the day’s losses. Meantime, U.S. Treasury bond yields were a mixed bag, as short-term yields fell while long-term yields rose. Though the yields are still inverted, this move considerably reduced the strength of that condition. The VIX Volatility Index was lower, as demand for option protection fell a bit.
Looking ahead, tomorrow will be full of economic data releases. This includes the Chicago PMI and the University of Michigan consumer sentiment index for March. New-home sales for February are also on the docket.
On the earnings front, tomorrow is rather bereft of companies reporting. Note that this will be the last day of trading with DowDuPont (DWDP – Free DowDuPont Stock Report) as a constituent of the Dow Jones Industrial Average. The company is spinning off Dow Inc. on April 1st, and that company will replace DowDupont in the index.
- John E. Seibert III
At the time of this article’s writing, the author had positions in DowDuPont (DWDP).
Before The Bell
Following a spirited late run by the equity averages on Tuesday, the stock market started the session yesterday in mixed fashion, with alternating gains and losses in the major composites over the first hour of trading. Relief that the Federal Reserve seems to be wedded to a fairly accommodative monetary policy and relief that the Mueller investigation concluded with no formal changes levied against high Administration officials were balanced by concerns about a possible recession later this year or in 2020. So the mixed performance over the past week seems appropriate.
As to more immediate influences, stocks were helped yesterday by the release of better-than-expected trade data for January. In all, the trade shortfall narrowed to $51.5 billion during the first calendar month of 2019. That was a much improved showing from the $57.4 billion deficit that had been forecast. That narrowing in the deficit from December should give the economy a lift during the opening quarter this year. For now, we suspect that growth will fall a bit shy of 1.5%. Still, this good news aside, yields on the 10-year Treasury note fell again yesterday morning to just under 2.39%.
Investors are keeping a close eye on these yields, as fears grow that the recent inversion in Treasury yields, in which the return on the 3-month T-bills exceeded that on the 10-year Treasury note. Recent recessions have followed such inversions. We note, though, that although recessions all have been preceded by inverted yield curves, some inversions have not fueled such a downturn. So, the situation bears watching. Yields had fallen further yesterday, when a likely nominee for the Federal Reserve Board of Governors proposed cutting the federal funds rate by 50 basis points.
Meanwhile, the stock market continued to wax and wane for most of the morning, with the Dow Jones Industrial Average staying in a range of about 150 points, with time spread equally between positive and negative territory over the day's first 90 minutes, or so. Then, a further drop in the 10-year Treasury note yield, to 2.36%, caused the market to weaken further, with the Dow falling to a loss of some 200 points as we neared the noon hour. The VIX Volatility Index spiked higher, as fears of a recession increased. The Dow's late-morning loss would carry that index down to a deficit of more than 230 points as noon arrived.
However, as has been the case throughout much of this bull market, it has been hard to keep the market optimists down, so just when it appeared as if stocks were heading still lower, the buyers appeared and managed to cut deeply into the midday deficit. In fact, the market came back rather strongly from 12:00 to 2:00, with just about all of the Dow's deficit erased. The recovery would go a little further as the afternoon proceeded, with the Dow actually going positive for a brief spell, before it joined the S&P 500 and the NASDAQ in the red as the final bell sounded.
All told, at the close, losing stocks held the lead on the Big Board, with the Dow surrendering 32 points. The S&P 500 was off by 13 points and the NASDAQ, on some weakness in technology, gave back 48 points. The small- and mid-cap indexes both were a little weaker at the close. The market, it would seem, is now in a balancing out period, between satisfaction that the Federal Reserve is turning more accommodative but concerned about the reasons for that shift. Looking ahead, the market's focus over the balance of the week will be on tomorrow's reports on new home sales and personal income.
Now, as we start the penultimate session of the week, we see that the key indexes were somewhat lower in Asia in the overnight hours, while in Europe, the bourses are trending upward on hopes for a U.S.-China breakthrough. Also, oil prices are now a touch lower and Treasury note yields, off yesterday, but still closing off their intra-day lows, are now edging slightly higher in early dealings. Finally, after yesterday's wide swings, the U.S. equity futures are pointing to a lower open to the session today, despite gains on hopes for a trade deal with China.
– Harvey S. Katz, CFA
