After the Close
After spending the bulk of Wednesday trading significantly higher, the major U.S. equities shed all of the rally in the final hour-plus of trading. The bullish charge was led by the Dow Jones Industrial Average, which had added around 200 points at its mid-morning high. As for the market groups, each of the ten major sectors traded in positive territory through the midday, with banking stocks responding favorably to President Trump’s business-friendly comments on the Dodd-Frank Act. This momentum ended, however, when minutes from last month’s Federal Reserve meeting were released.
The run up was helped by a positive private-payroll update from Automatic Data Processing (ADP). The March report revealed a 263,000 figure, roughly 18,000 jobs higher than the prior month and well ahead of consensus expectations. The second wide beat in as many months, the jobs number overshadowed a less positive non-manufacturing activity report. The Institute of Supply Management reported a 55.2% reading for March, below the anticipated growth rate.
It wasn’t until midway through the afternoon that the rally began showing signs of a turnaround. The Federal Open Market Committees minutes showed a majority of central bank members view the economy as strengthening, but also revealed some concern about high market values. This, appropriately, led to a broad-based reversal in trading. Also according to the transcript, the Fed is looking to pare its balance sheet this year. The late-day surge by the bears was bolstered by small- and mid-cap equities, which fell suddenly into the red after the publication of the minutes.
Meanwhile, the U.S. crude oil prices returned some their recent gains. The per-barrel value went down by $0.06, to $51.15, after the Energy Information Administration reported a weekly rise in stockpiles. The 1.6 million increase came in stark contrast to an expected flat rate, an expectation that was supported by an earlier update from an industry group. An unplanned drilling outage in the United Kingdom’s North Sea somewhat offset what could have been a more pronounced dip.
As we approached the closing bell, after each of the three indexes fell into the red, the bulls unsuccessfully attempted to mount a comeback. Looking out, trading activity will hinge more and more on updated figures from the business beat and the forthcoming first-quarter earnings season. Investors are waiting to see whether Corporate America can sustain the earnings momentum achieved in the prior period, which will be a major factor in determining where the averages trend thereafter. – Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 12:10 PM EDT
The major U.S. equity indexes are in full rally mode today, with the leadership coming from the large-cap Dow Jones Industrial Average. The Dow 30, on the strength of its basic materials, energy, and industrial components, is holding the biggest percentage gain, but that is not to say the small- and mid-cap stocks are struggling, as both the Russell 2000 and the S&P Mid-Cap 400 Index generally holding their own. The NASDAQ, which just moments ago hit an all-time high, is trailing the pack modestly on a percentage basis, but is still comfortably in positive territory as we pass the midday hour on the East Coast.
Driving the market higher this morning was some encouraging news from the business beat. Before trading commenced stateside, Automatic Data Processing (ADP) reported that private-sector payrolls rose by 263,000 jobs in March. It was the second-consecutive month that the figure far exceeded expectations, rising by 18,000 jobs from February’s equally impressive total of 245,000. Specifically, construction and manufacturing jobs outperformed expectations, helping overall totals in the non-government labor market. The 49,000 new jobs in construction and the 30,000 in manufacturing were far stronger than the historical average during this entire resurgence in U.S. job market from its nadir at the end of the prior decade. The jobs data are the key impetus behind the strong performance of the economically sensitive sectors today. The private-payroll figures, which come two days ahead of the nonfarm payroll figures from the government, are overshadowing a slightly disappointing report on nonmanufacturing activity this morning (more below).
Speaking of the top-10 equity groups, there are all up arrows as pass the noon hour. The leadership is coming from the energy and industrial sectors. The energy stocks are being helped by a recent jump in crude prices, which high a 30-day high earlier today. However, since that quotation, crude prices have gyrated a bit, with a higher-than-expected crude inventory build last week pressuring pricing some in the last hour. As noted above, the most strength is being seen among the economically sensitive groups, but there is broadbased buying interest nonetheless.
The jobs data were not the only news on the economy released today. At 10:00 A.M. (EDT), the Institute for Supply Management reported a slightly disappointing reading on nonmanufacturing activity. Specifically, the figure came in at 55.2% in March, which was below expectations and saw some pullback in growth in business activity and new orders, among others. The report did not have much of an impact on the bulls this morning, as the services sector is still expanding at a nice rate, even if it is off of the pace we saw in February.
As we noted earlier this week, the market was going to need something positive to drive it higher over the next fortnight ahead of the heart of earnings season. It seemed to get that this morning with the release of the blowout private-sector payroll figures from ADP. Also helping the market is the growing sentiment that a proposed border adjustment tax, which seems to be favored by some high-ranking officials in the Trump Administration, appears to be losing support. A border tax would likely hurt several industries, including the retailers. Further, a partial recovery in bond yields, which retreated some in recent weeks, also is giving a boost to stocks and making it look like it will be a good day for the bulls. 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
After starting the week out on a modest down note on Monday, Wall Street fell a little further at the open yesterday. As was the case the day before, the early damage was not overwhelming. In fact, after the first hour's descent, the major indexes, led by the Dow Jones Industrial Average, tried to rally, and did so with mixed results. On point, the Dow climbed to a gain of some 50 points by late morning. However, the other indexes could not make it all the way back, save for a brief few minutes, and as the noon hour arrived on the East Coast, the composites were all lower, except for the blue chip composite.
Behind the early pullback and subsequent half-hearted rally attempt were the distribution of a pair of constructive economic reports. Specifically, the Commerce Department issued data showing a narrowing of the U.S. trade deficit in February, following a marked rise in the imbalance the month before. Contributing to the better result was a slight rise in exports in February and a large drop in imports. Also, there was a release showing a solid gain in factory orders in February. This uptick, coming on the heels of a report of reasonable levels of manufacturing activity in March, helped underpin the generally upbeat current economic outlook.
The stock market then continued on its uneven path into the lunch hour and early afternoon. To wit, the Dow retained a modest gain of 25 to 50 points, for the most part, while the S&P 500 Index and the NASDAQ weaved in and out of positive territory. As before, losing issues held an edge, which had narrowed somewhat as the midday hours progressed. Also, gaining and declining sectors were about even among the top 10 market categories. It was a pedestrian session for the most part as we moved into the final 90 minutes of the trading day.
This narrow trading range evolved ahead of a key meeting between President Trump and China's President Xi Jinping, which is set to take place later this week in Florida. The U.S. President already has said that the talks will be difficult due to the massive trade deficit now in place between our country and this rapidly emerging economic powerhouse. In addition to these trade concerns, the stock market also has been reacting so far this week to softer auto sales and concerns about today's non-manufacturing data, which is due out later this morning, and this Friday's employment report.
Given such concerns, the high profit expectations for the just-ended first quarter, and the elevated valuations, which would seem to allow for relatively few disappointments, it is rather encouraging that stocks have continued to do as well as they have. Meantime, the equity market started to strengthen briefly as the afternoon wound down, with the Dow moving up toward the upper end of its trading band for the day, while the S&P 500 Index and the NASDAQ nudged slightly into the black. The smaller-cap indexes also gained some strength narrowing their deficits late in the day.
But this comeback did not gather much additional momentum. So after briefly giving ground late in the session, the averages steadied, and as the session concluded, the market ended up with range-bound results. In all, the Dow finished with a gain of 39 points; the S&P 500 Index, in and out of the black all day, wound up with a token increase; while the NASDAQ was ahead four points. Also, the S&P Mid-Cap 400 and the Russell 2000 each edged lower. Some apparel and retail issues were weak, including Dow component NIKE (NKE - Free Nike Stock Report), which fell nearly a percentage point. Energy and basic materials stocks rallied, though.
Looking out to a new day, we see that equities were trading higher in Asia overnight, while the principal bourses in Europe are moving sideways in early dealings this morning. Our futures, meantime, are mixed, as well; oil prices are at a one-month high after rising yesterday; and interest rates, which were flat-to-up narrowly yesterday, are now up a little. As for news, the month's key issuance on non-manufacturing will be out at 10:00 AM (EDT), while this afternoon we will get a glimpse of the minutes from the Federal Reserve's latest FOMC meeting. So, it should be a fairly busy day. 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.
