After The Close
The stock market started out lower today, as a few earnings releases rattled investors. Indeed, Dow-component Intel Corp. (INTC – Free Intel Stock Report) dropped on lower-than-expected guidance for 2019, causing the Dow Jones Industrial Average to fall by as many as 70 points in the early part of the session. The other indices also declined in price. However, the Bureau of Economic Analysis reported that the U.S. economy grew 3.2% in the first quarter of 2019 in its initial read. This is a much-better number than what was expected, and that caused sentiment to improve. Accordingly, the composites swung from mild losses to moderate gains. The markets then traded sideways for most of the day, before making a final push higher in the last hour of trading, while stopping just short of intraday all-time highs on the S&P 500. All told, the Dow closed the day higher by 81 points, while the S&P 500 rose by 14 points, closing at a record high.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 2.2-to-1.0 ratio. Consumer staples stocks were among the best performers today, while energy issues were among the weakest, hurt by a slide in energy prices.
In commodity news, oil prices were lower today, after President Trump stated that he called up OPEC to tell them to lower prices. This caused sentiment to decline, as traders think that additional supply could come in to the market. Also, U.S. Treasury bond yields were lower as a flight to the safe-haven assets occurred. The VIX Volatility Index was lower, as demand for options protection fell.
Looking ahead, all eyes next week will be on the U.S. Federal Reserve’s meeting, at which they will decide interest-rate policy. Though no change in rates is expected to come from next week’s decision, traders will likely look into the accompanying statement to see what in the outlook might be different. Additionally, earnings season will continue, and several Dow companies are expected to report next week, including Apple (AAPL – Free Apple Stock Report) which is slated to report next Tuesday.
- John E. Seibert III
At the time of this article’s writing, the author held positions in INTC and AAPL.
Before The Bell
It continues to be all about earnings, and never more was this the case than yesterday, when 3M Company (MMM - Free 3M Stock Report), a component of the Dow Jones Industrial Average, shocked the Street by reporting a big earnings miss for the latest quarter. Specifically, the giant conglomerate posted a weak bottom-line report and reduced its full-year profit outlook. The company also announced plans to trim its global workforce by 2,000 individuals. The stock fell more than 10% initially on that disappointing result, or more than $20 a share. That sharp drop led the Dow to an early morning loss of more than 260 points.
The market's early woes would have been worse had software behemoth and fellow Dow issue, Microsoft (MSFT - Free Microsoft Stock Report) not posted a big profit win. That stocks, which rose 4% early on, enabled the NASDAQ to push nicely into the green, even as the Dow wilted. Still, it was a poor opening for an overbought stock market. Facebook (FB) shares also rallied, and that, too, helped the NASDAQ stay above water. Also gaining modestly in the first hour were interest rates, as well as the VIX Volatility Index, as the 3M earnings miss raised the level of fear--at least for the time being.
The market would continue to push lower, with the weakest link, in terms of percentage losses, being the S&P Mid-Cap 400, with that index off almost 1.5% after the first hour of trading. Meanwhile, of the S&P 500 companies that have reported their quarterly metrics, nearly 80% have surpassed their targets. To be sure, there have been some celebrated misses, with the latest, of course, being 3M. Overall, though, the news has been quite good, especially given that the bar had been set very low going into reporting season. This aggregate strength has helped the leading averages remain near their all-time highs.
Meanwhile, as the second hour began, the Dow's loss swelled past 285 points, while the NASDAQ, once up a solid 50 points, had eased into the red. But that would be the low for the session, as each of the averages would start to claw their way back. That is a pattern that has been in effect for the year to date. Indeed, as we moved into the final two hours of the trading day, the Dow's deficit would shrivel to fewer than 100 points, while the S&P 500 Index and the NASDAQ would move comfortably into the plus column. However, the smaller indexes would remain well under water.
This split market would continue in place as the afternoon dragged on, but with the Dow's loss continuing to narrow. In fact, if we exclude 3M, which was off nearly 13% in late trading, the blue chip composite would have been up nicely on the day. As it is, as we hit the final 90 minutes of the session, the NASDAQ was ahead some 35 points. The march back would persist as we neared the close of trading. For a time, it looked as though the Dow would come all the way back, but the loss in 3M was simply too much to bring such a complete turnaround about, and that composite would close off by 135 points after some last-minute selling.
Looking ahead to the week's final session, and to the just-issued report on first-quarter GDP, we see that stocks were notably lower in Asia overnight, while in Europe, the major bourses are trending slightly upward. Further, Treasury note yields, up slightly in dealings yesterday, are now off a tad, while oil prices are down about 2%, thereby putting the week's gains at risk. As to the economy, the government reported that first-quarter GDP rose 3.2, which compared very favorably to the fourth-quarter increase of 2.2%. Expectations had been for a gain of just 2.4%.
The latest period was helped by a narrowing trade gap, by an upturn in state and local government spending, and by an increase in inventory investment. This clearly better-than-expected performance could well have borrowed from the second quarter. In fact, we sense that growth in the current three months will take a backward move, with some possible drawing down of inventories keeping growth to less than 2.5%. As to the stock market, the futures are suggesting a narrowly higher opening when trading resumes in a few minutes from now, having reversed an earlier decline in the futures before the GDP data came out.
- Harvey S. Katz, CFA
