After The Close
The U.S. equity markets started the day on a down note and spent most of the session in negative territory, but a late afternoon rally helped erase most of the earlier losses.
On the economic front, the Institute for Supply Management issued a mixed report on the industrial sector. Specifically, U.S. manufacturing activity in April expanded at the slowest pace since last July, while the production index (though still growing) had its biggest drop in over a year. On the plus side, backlogs were at their highest in over a decade and delivery times continued to stretch, suggesting manufacturers were having a hard time keeping up with orders.
Trade issues also remained prominent on the market’s radar, after yesterday’s announcement that tariffs on steel and aluminum exports from Europe, Canada, and Mexico would not go into effect until June 1st—a month later than originally planned. Investors also were likely cautious in light of this week’s Federal Open Market Committee meeting. Although a rate hike doesn’t appear to be in the cards this time around, the market will be looking for any directional clues in the lead bank’s post-meeting remarks tomorrow afternoon.
At the closing bell, the Dow Jones Industrials were off 65 points, marking a third straight down session. The broader S&P 500 Index tacked on six points, while the tech-heavy NASDAQ led the pack rising 64 points, or just over under one percent. The composite got a big boost from Apple (AAPL – Free Apple Stock Report) shares which rose more than 2% ahead of the tech giant’s first-quarter earnings report, which was due after the close.
In terms of sector performance, most groups were in the red, with the biggest hits sustained by consumer noncylicals (-1.0%), telecommunications (-0.8%), and energy (-0.5%) stocks. The main exception to today’s downturn was the technology sector, which gained about one percent.
Elsewhere, oil prices took a step back, reflecting rising U.S. production and stockpiles. Light sweet crude fell 1.7%, to $67.45 a barrel. Meanwhile, the European bourses were quiet today, as most businesses on the Continent were closed for the May Day holiday. However, London’s FTSE 100 Index closed up modestly, setting a three-month high.
– Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Stocks got off on the right foot yesterday, as the month of April came to a close, with an early triple-digit gain in the Dow Jones Industrial Average. Deal making and solid earnings were major themes in the latest session, with blue chip McDonald's (MCD – Free McDonald’s Stock Report) leading the way higher on strong metrics for the latest quarter. The Dow, on strength in the aforementioned fast-food giant, was the best performing index. All told, McDonald's shares soared almost 5%. It was joined by several other Dow stocks in the big winner's column.
Also helping in addition to earnings and deals--and this may have been the biggest propellant in the early surge--was the fact that Treasury note yields had held comfortably below 3.00%. It had been a jump in yields, to a high of 3.03% last week, that had notably pressured stocks. Now, with the 10-year note at 2.95%, the Dow was able to climb to a gain just north of 185 points in the first half hour of trading. Solid early advances also were inked by the S&P 500 Index and the NASDAQ.
Meanwhile, the headline event this week will be the latest Federal Reserve meeting, with this two-day get-together commencing this morning. Its conclusion tomorrow afternoon is unlikely to bring an interest-rate change. We think that a rate adjustment will take place at the next bank gathering in June. One more increase, likely in September, is expected to then follow. The bulls hope that closes the book on 2018, although a rate hike in December, should inflation tick somewhat higher, cannot be ruled out, in our view.
In the meantime, the bulls continued to rally as the morning continued, but as we reached the noon hour in New York, the bottom fell out, and all three of the major large-cap indexes fell into the red, with the Dow the last of this trio to go negative. Concerns that a deal in the telecom sector might not pass government muster and renewed fears of a trade war with the euro zone, combined to take stocks lower. Concerns in the Middle East involving Israel and Iran also weighed on sentiment and equity prices.
Thus, stocks after that fast start, traded lower, although for a time in mid-afternoon, the Dow went back and forth with respect to nominal gains and modest losses. However, the NASDAQ, on a selloff in technology, was about a half a percentage point lower at that time. Things would then worsen as the afternoon proceeded, and after several half-hearted attempts to get back on track, the bulls finally capitulated and stocks would finish the session rather solidly in the red. As a result of the sharp losses, the three leading averages are now just flat for the year.
All told, the sharp losses late in the session left the Dow down by 148 points on the day. The losses in the S&P 500 and the NASDAQ came to 22 and 54 points, respectively. Breaking the session down, we see that nine of the top 10 sectors were lower on the day, with the deficits most pronounced among the telecom, health care, and basic materials issues. Only the energy group edged higher on oil price strength. The Big Board, meantime, saw almost twice as many losing issues as gaining stock on this bearish end to April.
Now, we shall see if the old adage that maintains investors should” sell in May and go away” will be borne out this year. Our sense is that what the Federal Reserve says tomorrow afternoon may have some bearing on that. In fact, even if the Fed holds the line on rates, what is says about the future will be scrutinized closely. In the meantime, stocks traded nicely higher in Asia overnight, while in Europe the key bourses are now tracking a bit higher at this hour. Finally, the futures in our market are suggesting a weaker open when trading resumes.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
