After The Close
Stocks opened higher this morning, pulled back sharply around noon, but managed to recover some ground later in the day. Today’s market volatility was likely caused by investor concerns about the ongoing trade negotiations taking place between the U.S. and China. At the close of trading, the Dow Jones Industrial Average was down roughly 207 points; the S&P 500 Index was off 11 points; and the NASDAQ was lower by 18 points. Market breadth showed some weakness today, as decliners easily outnumbered advancers on the NYSE. From a sector perspective, technology and healthcare issues fell notably, while defensive utility stocks displayed some relative strength.
In economic news, construction spending eased 0.6% in the month of December, which stood in contrast to the advance posted in November. Tomorrow, we will get a look at the latest monthly new home sales figures. Looking ahead to the end of the week, the government will release the February employment report on Friday morning. That issuance will be widely watched by traders trying to get a better sense of the Federal Reserve’s course of action.
In the corporate arena, it was a relatively quiet day. At this point, the fourth-quarter earnings season has largely concluded. However, in general news, shares of AT&T (T) moved lower today, on reports that the telecom giant will be restructuring its media business.
Technically, the stock market performed quite well in the month of January and February. The month of March has just started, and it is likely too early to tell how things will unfold. Wall Street will clearly be looking for improved traded relations between the U.S. and China.
- Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The first full trading week of March is set to begin with the major equity indexes in the midst of a significant winning streak. Although the Dow Jones Industrial Average delivered a relatively flat performance last week, falling less than 10 points in total and ending a nine week winning streak, the technology heavy NASDAQ and the broader S&P 500 Index were able to produce gains during the five-day stretch of trading. For the most part, the latter two averages have pretty much matched the index of 30 bellwether companies stride for stride in a thus far bullish 2019. The broad-based buying this year has retraced the significant losses in the fourth quarter, which included the worst December showing since 1931, and then some. The small- and mid-cap sectors have been as equally resilient in 2019, with most of the gains being driven by recent optimism on the trade front, a more dovish-than-expected Federal Reserve, a supportive fourth-quarter earnings season, and some decent economic data. The long-standing bull run has now been in place for a decade, and may get a further boost soon from some trade news.
On Friday, the bulls welcomed in the month of March with another fine performance. The Dow 30, NASDAQ, and S&P 500 Index produced respective gains of 110, 63, and 19 points. The move higher on the week’s final trading session was driven by optimism that the United States and China were close to a new trade deal that would stop the bickering between the world’s two-largest economies, which seems to be having a detrimental effect on the performance of the global economy. Last week, it was news that the Trump Administration would delay the increase in tariffs that was scheduled for March 1st that gave investors some confidence that a trade accord may be close. The trade news trumped some data on the economy and earnings, and the latest monetary policy commentary from Fed Chairman Jerome Powell. The data from the business and earnings beat, for the most part, failed to excite investors and had Wall Street pointed toward a losing week until the trade news emboldened investors on Friday. For the week, the Dow 30 was nearly flat, while NASDAQ Composite and the S&P 500 Index climbed 1.0% and 0.4%, respectively.
Meantime, the bulls may get a boost today as reports surfaced over the weekend that the United States and China, as noted above, appear to be very close to a deal that would end the trade dispute between the two nations that began just over a year ago when the U.S. placed tariffs on Chinese imports on March 1, 2018 and the Asian powerhouse responded with its own set of retaliatory measures. According to a few published reports, high ranking officials involved in the ongoing trade negotiations said that the U.S. and China were close to a trade deal that may end American tariffs in return for Chinese concessions. The rumored deal requires China to follow through on pledges ranging from better protecting intellectual-property rights to buying a significant amount of American products. Signs of progress between China’s government and the Trump Administration is helping revitalize a rally in global equities that showed signs of stalling early last week.
The trade talk, though front and center for Wall Street, is not the only significant news that the investment community will get this week. The first full trading week of March will end with the latest report on employment and unemployment on Friday. The jobs creation figures of late have been very strong, and will continue to be closely watched by the Federal Reserve as it proceeds with its 2019 monetary policy agenda. The talk of inflation, which emerged last year, has dissipated in recent months, as the economic data, save for the job figures, have been lukewarm, at best. Specifically, the news from the housing market last week was once again weak, with housing starts, an indicator of future construction activity, falling more than 10% in December. (The December figures were delayed due to the recent government shutdown.) Likewise, the Institute for Supply Management reported that manufacturing activity by 2.4 percentage points in February, to 54.2, though figure still stands well above 50.0, the dividing line between an expanding and contracting sector.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are indicating some buying when the U.S. stock market opens. So far overseas, the bulls have held the upper hand. The main indexes in Asia were higher overnight on the trade news (though the buying did ease some as the session ended), while the major European bourses are in positive territory as trading moves into the second half of the session on the Continent. China’s yuan also strengthened on the trade reports. From a sector perspective, investors may want to give some extra attention to those groups that are closely tied to economy and the international trade markets, as they may get a boost from any forthcoming news on a trade deal. The multinational companies in the Dow 30, including the likes of heavy equipment maker Caterpillar (CAT – Free Caterpillar Stock Report) may eventually come into focus if a trade accord is struck. Stay tuned.
– William G. Ferguson
