After the Close
Equities moved sharply lower this morning, but managed to recover some ground in the afternoon. At the close of the session, the major averages were still in negative territory. Specifically, the Dow Jones Industrial Average was down 13 points; the broader S&P 500 Index was off about four points; and the NASDAQ was lower by 17 points. Market breadth showed some underlying weakness in today’s session, as decliners outpaced advancers on the NYSE. Most of the major equity sectors lost ground, with notable weakness in select consumer and industrial names. In contrast, the telecommunications stocks bucked the downtrend.
There were a few notable economic reports released this morning. Specifically, the ISM Index came in at 57.2 for the month of March, which was roughly in line with expectations. In addition, construction spending increased 0.8% during the month of February, which more or less met the consensus forecast. Tomorrow, we will get a look at the latest monthly trade balance figures. Factory orders for the month of February are also due out.
In business news, few corporations delivered their financial results today. However, now that the first quarter of 2017 has concluded, numerous publicly traded companies will be issuing reports in the coming weeks. This earnings season will be of some importance, as many of these corporations will probably be fine tuning their guidance for the remainder of 2017.
Technically, the stock market seems to be in need of some direction at this point. Traders may want to see some concrete progress from the new Administration in Washington. Further, with stock prices at somewhat elevated levels, it is important that the business outlook does not soften too much. – 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 - 12:10 PM EDT
The major U.S. equity indexes started the first session of the second quarter trading in a tight band around the neutral line, which was not overly surprising as we expected investors to take a guarded approach ahead of a few key releases later this week, including the minutes from the last FOMC meeting (Wednesday) and the March nonfarm payroll figures (Friday). However, as the morning hours wore on, the selling began to pick up, likely prompted by some modestly disappointing data from the business beat, including the latest reading on manufacturing activity from the Institute for Supply management (see below).
There is a definite bearish tone to trading now on display. The Dow recently fell by triple digits and the NASDAQ, after hitting an all-time high in the first half-hour of the session, has reversed course significantly. Overall, most of the major equity groups are in negative territory and there is a plurality of losing issues on both the Big Board and the NASDAQ. It should also be noted that the broader small-cap equity market is holding the biggest percentage loss, which may indicate that the bears will be tough to beat today. From a sector perspective, the biggest laggards are energy and financial groups.
As noted, the economic data was somewhat disappointing today—and the market reversed course shortly after the latest manufacturing data were released at 10:00 A.M. (EDT). Specifically, The Institute for Supply Management, the Tempe, Arizona-based trade group, reported that manufacturing activity retreated modestly last month, from 57.7% in February to 57.2%. That reading, while still encouraging and indicative of a nicely expanding sector, fell short of expectations. That, along with mostly discouraging sales figures for the automakers, is pressuring stocks today.
Our sense is that with earnings season still a few weeks from heating up, investors don’t have much to push the major averages, which are still trading at lofty valuations, higher. The news from Washington D.C., where there are highly contentious feelings between Democrats and Republicans, is not helping matters on Wall Street either, as doubts are growing about whether President Trump will be able to get some of his pro-business agenda, most notably corporate tax reform, through Congress this year. The first significant initiative from the Trump Administration, legislation to repeal and repeal the Affordable Care Act, failed to garner enough support from House Republicans to push the bill onto the Senate.
Looking ahead to the second half of the trading day, we think the bears will be tough to beat. The news from the business beat unnerved investors, and did nothing to offset some of the investment community’s worries that the combative feelings along party lines on Capitol Hill may prevent the passage of some productive bipartisan legislation in 2017. The S&P 500 Volatility Index (or VIX), also known as the “fear gauge,” is up more than 7% today and we are seeing a movement toward the safety of gold and bonds. 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 first calendar quarter of trading on Wall Street was a productive one for those long equities. The stock market got a boost from a number events, including the continuation of the post-Presidential Election rally that began on November 9th; a very good fourth-quarter earnings season; and mostly positive data on the U.S. economy. And, although the Federal Reserve did raise interest rates at its mid-March FOMC meeting (the second in three months), a maneuver that is typically not good for stocks, investors were comforted by what was determined to be a more-dovish-than-expected central bank at this point in the economic up cycle. All of these factors combined to make it a winning 90-day stretch, with the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index producing respective advances of4.6%, 9.8%, and 5.5%.
Meantime, the most recent week of trading also slightly favored the bulls, but that is not to say that the bears did not put up a good fight. In fact, the move to the upside by the large-cap Dow 30 and the broader S&P 500 Index was well contained over the five-day stretch, with each rising by a modest 0.3% and 0.8%, respectively. For the most part the week’s heavy lifting was done by the NASDAQ Composite, which produced a return of 1.4%. The NASDAQ was driven by a continued strong performance from the technology stocks. Shares of Apple (AAPL - Free Apple Stock Report), which climbed 24% in the first quarter, continued to lead the tech stocks higher. It also is worth noting that the healthcare stocks, most notably those of the drug producers, hospitals, and managed care facilities, rallied some after news broke late in the prior week that the proposal put forward by President Trump and Speaker of the House Paul Ryan to replace the Affordable Care Act did not gather enough support from House Republicans to push the legislation onto the Senate. Also helping stocks, in general, was an uptick in crude oil prices in both New York dealings and on the Continent.
On Friday, the market turned in a mixed performance. The headline numbers, which included respective losses of 65, three, and five points for the Dow 30, NASDAQ, and S&P 500 Index, would suggest that it was a difficult session for stocks, but when investors delved down deeper into the numbers, it revealed a mixed session. Market breadth favored the bulls, with winning issues leading losers on both the Big Board and the NASDAQ, and the small-cap Russell 2000 and the S&P Mid-Cap 400 Index finished nominally higher. Our sense is that investors may be in a bit of a holding pattern, waiting to see what the fast-approaching first-quarter earnings season will bring. Good news from Corporate America may be needed to push the market higher, as the President Trump rally on Wall Street may be losing some steam, with concerns that some of his big business-friendly initiatives, particularly tax reform, may not come to fruition as quickly as some on Wall Street would have liked. Some hesitation ahead of this Friday’s report on the labor market may keep trading in check this week, with investors unwilling to make a big move ahead of that important data, which plays a big role in the Federal Reserve’s monetary policy formulation.
Looking ahead to the week at hand, it will be another light schedule on the earnings front. That will have all eyes on the business beat, where we will get a number of important reports, including the latest data on manufacturing and nonmanufacturing activity, auto sales, and the aforementioned nonfarm payrolls figures for the month of March. The jobs data, along with the minutes from the latest FOMC meeting (released at 2:00 P.M. (EDT) on Wednesday), will give investors more clues as to how the Federal Reserve may proceed with regard to monetary policy in the coming months—and for that reason those reports could have a significant impact on trading on Friday. The fluid situation in Washington D.C., where tensions along party lines continue to escalate will also be closely monitored by investors. The contentious feelings will likely be on display once again as the vote on President Trump’s nominee for Supreme Court Neil Gorsuch is scheduled on Capitol Hill.
With less than an hour to go before the commencement of trading stateside, the futures are presaging a relatively flat opening for the U.S. equity market this morning. As noted above, we think this could be the case for much of this trading week, as investors may show some apprehension ahead of Friday’s jobs report from the Labor Department. 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.
