After the Close
Equities got off to weak start this morning, but managed to rebound somewhat during the afternoon. At the close of the session, the Dow Jones Industrial Average was down about 51 points; the S&P 500 Index was off eight points; and the NASDAQ was lower by about 22 points. Market breadth showed some underlying weakness in today’s trading, as losers were well ahead of winners on the NYSE. Further, most of the market sectors lost ground, with notable declines in the basic materials issues. The financial names also weighed on the market. Meanwhile, the energy stocks managed to buck the downtrend today.
There was just one economic report issued this morning. Specifically, factory orders rose 1.2% during the month of January, which more or less met expectations. Tomorrow will be a light day for economic news, as well, with just the monthly international trade figures due out. Meanwhile, the main event for the week will take place early Friday morning. Specifically, the government will release its February employment report. That issuance will be widely watched by traders, since the Federal Reserve looks carefully at the nation’s job market when it shapes its monetary policy.
Meanwhile, on the corporate front, things were relatively quiet today. The 2016 fourth-quarter earnings season is now essentially over. In fact, traders are likely looking ahead, as the end of the month of March marks the conclusion of the first quarter of 2017. Over the next few weeks, some companies may be revising their guidance, and that can be quite telling.
Technically, stocks have performed well during the first months of the year. However, equity valuations are likely a bit elevated, which leaves little room for disappointments or setbacks. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EST
The U.S. equity market is under selling pressure today, with some unsettling news leading to profit taking in a market where equity valuations are looking quite stretched. The major equity indexes started the session in the red and are still in negative territory as we approach the midday hour on the East Coast. The selling, which has intensified some in the last hour, is broadbased, with the move to the downside being led by the broader small- and mid-cap sectors. Overall, declining issues are leading advancers by the tune of more than three to one on both the Big Board and the NASDAQ.
Growing sentiment that the Federal Reserve may embark on a bit more restrictive monetary course in the coming month is weighing the most on the market. There is a fear among investors that a less accommodative Federal Reserve may slow the growth we are seeing in the local economy. A more hawkish central bank is typically not viewed positively by investors and that looks to be the case once again today. Investors are also reacting negatively to reports that the pace of China’s economic growth may slow further in 2017; the tensions that are rising between China and South Korea over continued missile testing by North Korea; and the accusations from President Trump this weekend that his predecessor Barack Obama wire-tapped him in the weeks leading up to the November election. As we noted in our pre-market commentary, any negative headlines may prompt some selling in a market that is overbought. Investors are shying away from risk after a recent stretch that saw an enormous amount of money that was idle from an investment perspective come flowing back into the equity market.
As noted above, it has been a clear sweep so far today for the bears. All of the major averages are in the red and all of the 10 major sectors are in negative territory. The biggest laggards are the basic materials, financial, and the technology stocks. And even the more defensive utilities and telecom issues are out of favor in a down tape on Wall Street.
Meantime, we also think that investors are a bit apprehensive ahead of the much-anticipated report on the labor market this Friday. A strong showing in February job creation would probably bring further calls that the Federal Reserve will begin to embark on a slightly more restrictive monetary policy in the coming months. Federal Reserve Chair Janet Yellen noted last week that the signs (a strengthening labor market and an uptick in inflation) are emerging that the economy should be able to withstanding a monetary tightening.
Looking at the current market fundamentals, it appears that the bears will be tough to beat today, especially with the earnings and economic news being on the light side. That said, the news from Washington D.C. remains fluid right now and can change the direction of the market on a dime.
Any more commentary on a Trump Administration tax plan could potentially boost the market, but our sense is that is unlikely to occur today with most of the attention focused on a revised executive order on travel and immigration policies signed this morning by President Trump. 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.
Before the Bell
The most recent five-day stretch on Wall Street was another good one for the bulls. The major equity averages hit new all-time highs mid-week, with the Dow surging pass the 21,000 mark and able to hold that level by week’s end. The rally was driven by a favorable reaction from the investment community to President Trump’s speech before a joint session of Congress last Tuesday night. The speech called for a number of pro-business initiatives—including regulations, rollbacks, and corporate tax cuts—that were hailed by both Corporate America and Wall Street. The indexes jumped considerably on Wednesday, ensuring another winning week for stocks. Some encouraging data on the U.S. economy also gave a boost to the U.S. equity market.
On Friday, the bulls took a bit of a breather, but were still able to push the major indexes slightly higher. All in all, they were range bound, likely held in check by commentary from Federal Reserve Chair Janet Yellen that the economy, as reflected in strong reports on manufacturing and nonmanufacturing activity last week, is strengthening and the time is getting close for the central bank to begin tightening the monetary reins. This raised concerns that some forthcoming interest-rate hikes, possibly beginning at this month’s FOMC meeting, will slow the economic progress made in recent quarters.
Speaking of the economy, this week will bring a major report on Friday, when the Labor Department releases its figures on employment and unemployment for the month of February. That report has the potential to be a game changer for the market, as the investment community, with earnings season now nearly complete, will be focusing on economic data in trying to figure out what the Fed will do with regard to monetary policy. Another strong jobs creation figure like the January increase of 227,000 could raise the sentiment that the Federal Reserve is about to embark on more restrictive monetary policies, which is typically not good news for the U.S. equity market. Also this week, we will get data on factory orders for January (today) and the EIA’s Crude status report. Last week that report showed a build of 1.5 million barrels, as crude stockpiles hit another record.
The investment community will continue to keep close tabs of the happenings in the nation’s capital, as it awaits the unveiling of President Trump’s tax-reform plan, which he promised a few weeks back would be made public in about three weeks. The market has risen to record highs on hopes of a major reform of the corporate and individual tax codes. It should be noted that money has come pouring back into the market during the recent bull run, which has left the market overbought and susceptible to some selling if news were disappoint. That is why we think this Friday’s report on the labor market has the potential to have a big impact on trading during the week’s final trading day.
And with valuations looking quite frothy right now, we are likely to see some modest profit taking when the action gets underway stateside as the most recent news has not been market friendly. News overnight of rising geopolitical tensions in East Asia, as North Korea fired four ballistic missiles early in the day, while a squabble between China and South Korea over the missile defiance of the rogue nation deepened. Investors also are continuing to weigh the possibility of an interest-rate hike by Federal Reserve and what impact it would have on the recent progress of the U.S. economy, as well as a recently released slower 2017 growth target for China’s economy. And last, but certainly not least, investors are a bit unnerved by accusations by President Trump this weekend that his predecessor, Barack Obama, wiretapped him in the days leading up to the November election. 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.
