After The Close
Following yesterday’s tech-driven selloff, the major U.S. indexes rebounded in a big way late on Tuesday afternoon. While all three of the large-cap groupings traded steadily in positive territory for most of the day, persistent challenges threatened to keep the averages lower than their daily highs or near the breakeven lines. But as the final hour approached, the S&P 500, Dow Jones Industrial Average, and NASDAQ 100 each spiked significantly higher. Underscoring the positive breadth, advancing issues outnumbered declining shares by a more-than 2.5-to-1.0 ratio.
As the day wore on, investors began looking past the developments from Washington. President Trump’s critical Tweets about Amazon.com (AMZN) initially pressured the technology sector as investors consider the very real possibility of increased regulation, but the tech sector’s fortunes turned around in the final hours. Fellow industry giants Facebook (FB), Google-parent Alphabet (GOOG), and Netflix (NFLX) struggled at points, too, before the late-day buying spree drove their respective stock prices higher.
Meanwhile, fears of a trade war with China were ratcheted up a notch over the past 48 hours. Asia’s superpower announced it was implementing new tariffs on 128 U.S. products; the most recent move in a growingly fraught back-and-forth between it and the United States. Though traders were eager to buy in at reduced equity valuations today, we expect concerns over a potential trade war to remain a dominant storyline in coming sessions.
In tandem with the equity market, domestic oil prices bounced back. But the roughly $0.54 per-barrel gain (+0.86%) will probably face challenges in the near term, as supply- and stockpile-related pressures figure to cloud the outlook for the commodity market. Tensions between Saudi Arabia and Iran, as well as the ongoing drilling accord by OPEC figure to be positive tailwinds.
By the end of the day, the indexes had each cut considerably into yesterday’s losses. The Dow was the best performing composite grouping, adding almost 400 points. Looking out to the rest of the week, we believe the aforementioned anxieties in the trade and technology arenas will conspire to challenge today’s late-afternoon run up. These uncertainties may be offset somewhat during earnings season, which begins next week when a slew of financial giants release their quarterly reports. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
Wall Street began the post-Passover and Easter weekend yesterday on an initially mixed note, with the Dow Jones Industrial Average near breakeven during the first few minutes of trading, while the NASDAQ headed lower. But that respite was all too brief, as the twin T's, technology and trade, soon overwhelmed investors, sending stocks dramatically lower. On point, with Amazon.com (AMZN) under intense selling pressure (the stock had shed close to 6% by noon in New York), the Dow and the NASDAQ, which was beset by selling in other big-name tech issues, both tumbled.
In fact, as morning turned into afternoon, the Dow was off by some 500 points, while the NASDAQ was down by nearly 200 points. That setback put the Dow more deeply into correction territory, while the S&P 500 Index moved back into that unenviable position, as well. Losses were tallied across the board, with the semiconductors, for example, a source of recent strength, in the lead among issues faltering in price. It was the President's sharp criticism of Amazon and worries about a possible trade war that were the main cogs in the morning's downdraft.
In other news, the economy was in some focus yesterday morning, as the Institute for Supply Management (ISM) reported that its key manufacturing survey had increased for the 107th consecutive month in March, scoring a survey result of 59.3. That manufacturing tally was well above the 50.0 line of demarcation between an expanding sector and one that was contracting. Still, the result was less than either expectations for March or the February score of 60.8. Holding the result back were lesser rates of gain in orders and employment.
What did rise, and do so notably, were prices, which gained nearly 4% for the month, signaling some inflationary pressures. Our sense, though, is that the relatively benign ISM issuance had little impact on the day's performance, which remained highly bearish. This stock market's woeful showing, which continued the intense volatility in place since early February. This weakness has been anything but confidence building for investors, and could well signal the weariness of the market and the vulnerability to any hint of less-compelling economic or profit news.
The stock market proceeded to move even lower as the afternoon progressed, with the Dow's loss at one time swelled to over 750 points. In fact, for a spell, it looked as though we might see a repeat of the quadruple-digit Dow decline seen on two occasions during the February correction. However, the blue--chip composite was able to right itself somewhat, so that the losses were pared as we entered the home stretch, with the end of trading showing a still large, but less unwieldy 459-point setback.
However, things were even less right with the NASDAQ, as that composite, once off 258 points, still plunging 193 points, and in the process losing all of its 2018 advance. In total, the three major large-cap indexes, the Dow, the S&P 500, and the NASDAQ are under water now for the year, with the first two composites moving below their 200-day moving average for the first time since the Brexit vote in June of 2016. As for trade, the possibility of a trade war seems real, after China unveiled retaliatory measures over the weekend.
Now, a new day is upon us, and following the sharp selloff yesterday in New York, stocks in Asia were lower in overnight dealings, while in Europe, the early read on the bourses is weaker, as well. In other matters, oil prices are up grudgingly and yields on the 10-year Treasury note, which failed to regain any ground yesterday, closing the day at 2.73%, are now passing hands at 2.76%. Finally, after yesterday's selling, the U.S. equity futures are now posting early modest gains in New York. As for the equity market in the coming hours, we would expect continued elevated volatility.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
