After The Close
The major U.S. indexes started the last session of the week in positive territory, and a late afternoon surge helped stocks to post solid gains for the day.
Optimism regarding trade talks between the U.S. and China apparently was behind the positive mood. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer wrapped up meetings in Beijing today, with talks scheduled to continue next week when Chinese Vice Premier Liu He visits Washington. Enthusiasm over reported progress temporarily helped ease rising concern over slowing economic growth. Notably, the yield on 10-year Treasuries recently dipped below that of 3-month Treasuries. Referred to as a yield-curve inversion, this action is often seen as a portent of recessionary times ahead.
At the closing bell, the Dow Industrials were ahead by 211 points; the broader S&P 500 was up 19 points; and the tech-heavy NASDAQ gained 60 points. All three indexes posted double-digit gains for the quarter, making for the best start for stocks in more than five years. All of the major market sectors ended the day on the plus side, with technology, healthcare, industrials, and basis materials all gaining more than three-quarters of a percentage point. At the other end of the spectrum, energy stocks ended just above breakeven. Altogether, advancing issues outpaced declining stocks by a wide margin. Elsewhere, light sweet crude was up 1.5%, to just over $60 a barrel. The U.S. benchmark gained more than 30% in the quarter, posting its best performance in nearly a decade.
Trading was also upbeat on the European bourses today, with stocks remaining firmly in the green throughout the entire session. France’s CAC-40 led the pack with a gain of just over 1%, while Germany’s DAX was up 0.8%, and Britain’s FTSE 100 gained 0.6%.
– Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Hopes that the resumption of trade talks with China would finally result in a deal soon being struck between the United States and that fast-growing nation helped to get the stock market off on the right track yesterday morning, with the Dow Jones Industrial Average quickly jumping out to a gain north of 115 points. The S&P 500 Index and the NASDAQ joined the party on those trade hopes. Still, the gains were capped somewhat by persisting worries about the state of the global and domestic economies, with recent days seeing a plethora of weak metrics issued on both sides of the Atlantic.
As to the economy, the Bureau of Economic Analysis yesterday morning released the updated figures for fourth-quarter (2018) GDP growth and that tally was revised downward from 2.6% to 2.2%. The lowered figure reflected a notable widening of our nation's trade imbalance in December. Interestingly, data issued earlier this week showed a major narrowing of our trade gap in January. That latter tally should help lessen the potential fallout during the first quarter of 2019. Even so, our estimate for the now-ending period's growth is in the 1.3%-1.5% range.
The market, meanwhile, continued to press ahead as the morning proceeded, although as we approached the noon hour, some of the earlier strong increases had been whittled away. It seems that the morning's activity was a balance between the potentially good news on trade and the dour tidings on economic growth at home and abroad. Still, after the market headed south as the morning ended, it steadied itself in the early afternoon and began to push higher, but in small increments. In all, as we moved into the final 90 minutes of trading on this opening day for Major League Baseball, stocks were holding modest gains.
Optimism over the restarting of the trade talks between the United States and China would help the market to remain on a higher track during the middle of the afternoon, with the indexes staying range-bound for the most part as the session wound down. Materials and consumer discretionary stocks were outperforming on the session on the growing trade optimism after China appeared to be making concessions on key technology issues. Still, some hard negotiations remain, in our opinion, before a final accord can be fashioned.
Meanwhile, after falling continuously over the past few sessions, Treasury yields ticked higher yesterday, with the 10-year Treasury edging up to 2.39%. Still that is the lowest yield since December, 2017 and this low return has stoked fears of a possible recession in the coming months. We do not share such pessimism and expect the economy to lumber along at a weaker, but not recessionary pace. Such a scenario should be supportive for the equity market, especially if corporate earnings do not deteriorate notably during the next few quarters.
The equity market would then strengthen moderately into the close, so as the final bell sounded, the Dow would finish ahead by 92 points; the S&P 500 would add 10 points; and the NASDAQ would climb 26 points. Also, gaining stocks would hold an advantage over declining issues. Looking at the final day of the week, we see that stocks were higher in Asia overnight, while in Europe, the key bourses are trading with gains at this hour on optimism about trade talks between the United States and China. Finally, oil prices are gaining; Treasury note yields are up a bit; and our equity futures seem set to start the day's trading in the plus column.
- Harvey S. Katz, CFA
