After the Close
U.S. equity trading was mixed for most of Wednesday, until a late-day selloff sent the averages lower. Only the NASDAQ was able to avoid negative territory on the day, but even it struggled as the closing bell neared. The tech-heavy sector managed to finish the day up nearly four points, 22 notches lower than its mid-afternoon apex. Only a third of Dow Jones Industrial Average’s components were in the black. Losses were exacerbated by Chevron (CVX – Free Chevron Stock Report ) and Caterpillar (CAT – Free Caterpillar Stock Report), which fell due to oil inventories rising and a tax and accounting fraud report, respectively. The late-day drop was particularly evident in the broad-based S&P 500 and Russell 2000 indexes. Overall, today’s decline was mostly a continuation of the recent softness to what has been a historically bullish market for most of the past four months.
Meanwhile, some rotational trading was at play. The energy sector registered the widest loss on the day, as another increase in U.S. crude oil stockpiles sent values lower. Basic materials and utilities, two of the bigger beneficiaries of optimism stemming from the Trump Administration’s anticipated pro-business policies, were also down considerably. But, consumer cyclicals, technology, and healthcare stocks posted gains. The latter’s rise is dually tied to the newly introduced healthcare bill, as well as investors taking advantage of attractive entry levels following yesterday’s tumble.
Looking forward, there are two main factors that will influence trading through next week. First, Friday’s monthly jobs report ought to offer updated clarity on the strength of the economy. Today’s release from Automatic Data Processing (ADP) indicated that 298,000 jobs were added in February. Though that figure will probably differ from the government report, investors are likely expecting a solid result at the end of the week. Then, barring a wide miss on Friday, the Federal Reserve is expected to implement an interest-rate hike next week. Recent strength on the market and in the economy has served to reinforce expectations that the central bank will announce a move in March.
In all, declining shares achieved a 2.5-to-1 edge over advancing issues. We expect some calm from the bullish sect until the aforementioned economic and monetary factors play out. Further progress on new legislation related to deregulation and tax reform promises could spur a sudden uptick in trading, but all eyes will invariably be on the Fed when next week begins. – 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 - 12:00 PM EST
Stocks are mixed overall today as the market seems to be pausing after its recent big gains. Just past the noon hour on the East Coast, the Dow Jones Industrial Average is down about 27 points; but the NASDAQ is up seven points and the S&P 500 is about flat. Market breadth is divided, with advancing issues outpacing decliners on the NASDAQ, but losers are outpacing winners on the Big Board.
One surprising piece of data affecting trading today was a large, 298,000 rise in the number of jobs added to the economy in February by payroll giant Automatic Data Processing (ADP). That news sent bond yields higher, with the yield on the benchmark 10-year Treasury note climbing from 2.51% to 2.57%.
The ADP figure doesn’t correspond perfectly with the government’s monthly jobs report, which is set to be released Friday, and in which around 200,000 jobs are expected to have been added last month. But Wall Street now appears to be more inclined to be looking for strength, rather than weakness.
In turn, expectations are rising for a quarter-point interest rate hike when the Federal Reserve meets to set policy next week. The broadly positive tone of recent business data provides further support for a bit of progress on the interest-rate normalization gradually being implemented by the Fed.
Among the stock market’s major sectors, shares of technology and consumer cyclical companies are among the session’s leaders. Bank stocks are being helped by prospects for higher rates, which would widen lending margins. On the down side, the interest-rate sensitive utilities sector is the biggest decliner.
Also trending lower is the energy sector, as oil prices pull back following word of a rise in crude oil stockpiles, as reported by the Energy Department. A decline in gasoline inventories is cushioning the fall somewhat, however.
Among individual stocks, shares of H&R Block (HRB) jumped after the tax-preparer reported a narrower-than-expected loss.
Wall Street is apparently looking for bigger things from the company for the tax season now in progress.
On the whole, the market seems to be in a holding pattern ahead of more clues to the precise direction of fiscal and monetary policy. – Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before the Bell
The U.S. stock market rolled into yesterday's session the same way that it commenced activity on Monday, which is with modest early losses. To be sure, the initial deficits were not as pronounced in the latest session as they had been the day before, but there was a definite bias to the downside, borne, we think, on concerns about the Federal Reserve's upcoming FOMC meeting (scheduled for the middle of next week), this Friday's employment report from the government, and the attempts to overturn the Affordable Care Act (ACA) by the Republican-led House of Representatives.
In all, stocks started to the downside, with the Dow Jones Industrial Average losing about 50 points in the first half hour of trading. That was about half the prior day's early setback. As on Monday, however, the bulls soon attempted to make a stand, and within an hour, or so, the Dow had shed its early losses and moved gingerly into the black, as had the NASDAQ. But this comeback could not be sustained, and as we reached the noon hour on the East Coast, the Dow, the S&P 500, the NASDAQ, the S&P Mid-Cap 400, and the small-cap Russell 2000 were all securely, if modestly, in the red.
The bias also was to the downside for the 10 leading groups, where just about all remained slightly weaker, while losing issues were topping winning stocks on the Big Board to the tune of almost two to one. The mood did not change much through the middle of the day, as the major averages stayed in the red, but generally off of their morning lows. To wit, the Dow off by the aforementioned 50 points, or so, early on generally maintained losses of 20 to 30 points. Proportionately larger deficits were suffered by the smaller composites. Such slippage was seen in the advance-decline ratio, which continued to notably favor the bears.
As to other news, the government reported early yesterday morning that the nation's trade deficit increased by $4.2 billion in January, rising from December's $44.3 billion to $48.5 billion. That was a slightly greater number than had been forecast, but should not set off alarm bells at the Federal Reserve, where the lone potential roadblock to an interest-rate increase being voted at next week's FOMC meeting is probably a very weak jobs report. That issuance comes out this Friday morning. Any number near the 185,000 consensus payroll rise would seemingly ensure a rate hike next week.
Returning to the trade report, the latest data showed that while exports from the United States (which adds to growth) increased by $1.2 billion in January, imports, which subtract from GDP, surged by $5.1 that month. Hence, the increasing trade gap. Meanwhile, little else of note is on the news docket for this week, save for the jobs report on Friday. So, Wall Street can focus on the Fed, where expectations of a modest move to tighten monetary policy appears to have about an 85% chance of taking place. We think such a move would be followed by two additional interest rate upticks this year.
The stock market then continued lower into late afternoon, giving Wall Street its first back-to-back drop since January, with worries about the Fed and legislation to repeal the ACA front and center on the minds of investors and contributing to a 30-point loss in the Dow Industrials. Declines of seven and 15 points, respectively were tabulated by the S&P 500 Index and the NASDAQ. Losses of more than half a percentage point each were sustained by the S&P 400 and the Russell 2000. Losing stocks, meantime, led gaining issues by some five-to-two on the NYSE, with health care and basic materials leading the way lower.
Now, a new day begins and for the first hint of trading to follow, we look at stocks in Asia, where the leading indexes were mixed in dealings overnight. The principal bourses, meantime, are also moving back and forth in Europe so far this morning, while on our shores, the early read on the equity futures is likewise mixed. In the day ahead, the latest thoughts on the Fed will again dominate thinking on Wall Street, as investors also look ahead to this Friday's report on non-farm payrolls and the jobless rate from the U.S. Labor Department. Stay tuned. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
