After The Close
The U.S. equity markets started the last session of the week in mixed fashion, and trading remained aimless throughout the day.
The lack of direction was largely attributed to conflicting signals over the status of trade talks between the U.S. and China. Meanwhile, the fact that 10-year Treasury yields are near a seven-year peak at 3.07% has likely prompted some investors to reduce their exposure to relatively pricey stocks. Elsewhere, mortgage rates have also hit a seven-year high, raising concerns that the housing market may lose some steam.
By the end of the day, the 30-stock Dow Jones Industrial Average had fared the best of the lot. After seesawing a few times above and below the unchanged mark, the index finished the day with little change. Meanwhile the broader S&P 500 and the tech-heavy NASDAQ (both of which spent the entire session in the red) were down seven points and 28 points, respectively.
Most of the 10 major market sectors ended the day in the loss column, with the biggest declines coming from financials and consumer noncyclicals, both down about half a percentage point. Healthcare and industrials were the only winners today, each up about a third of a percent. Elsewhere, Brent crude prices neared the $80 a barrel mark before easing back, as geopolitical tensions in the Middle East, OPEC production cuts, and the threat of U.S. sanctions against Iran have oil hovering near a four-year high. West Texas Intermediate was down slightly, at about $71.30 a barrel.
Lastly, it was also a down day for the European bourses, with Germany’s DAX shedding about a quarter of percent, while the U.K. FTSE 100 and France’s CAC-40 sustained more modest losses.
– 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
The stock market, which spent the better part of the opening three trading days of this week going back and forth and in and out, began the penultimate session of this five-day stretch heading decisively lower. On point, within minutes after the opening bell, the 30-stock Dow Jones Industrial Average already was off by more than 100 points. The prime culprit, in addition to some profit taking after a nice spurt last week, was continuing fears about rising interest rates. That concern followed a further tick up in yields on the 10-year Treasury note. In all, that debt instrument is now returning 3.11%.
The 3.11% yield on the 10-year note is, in fact, the highest level since August of 2008, and reflects the Federal Reserve's growing uneasiness about the current, and still somewhat nascent, uptick in inflation. Specifically, inflation has now stepped up to just about the Fed's 2% target, after having been below that threshold for a number of years. Our sense is that pricing pressures will not get out of hand. But even a further modest step-up in pricing pressures could encourage the central bank to raise interest rates three more times this year and on a like number of occasions in 2019.
And Wall Street does not like rising interest rates. So, stocks initially wilted yesterday. But as has been the case throughout this long bull market, the early selling often tends to be short-term in nature. And this was the case again yesterday, So, as we moved more deeply into the morning, the market's bulls stiffened their resolve and stocks started to rise. All of the indexes, in fact, entered the plus column, with the smaller-cap composites leading the way. The market then moved back and forth for a time, before a sharp, but again brief, down move in early afternoon. This retracement reflected concerns about a possible trade deal with China.
Specifically, there were reports the President indicated that trade talks between the United States and China might not be fruitful. These remarks came amid rising tensions between the two economic behemoths. So, as we headed further into the session, the market sold off again, with the Dow tumbling to a session low of some 120 points before staging a comeback inside the final hour. It appears as though Wall Street is in a tug of war, between the good news on the economy, earnings, and tax cuts and the negatives of trade, geopolitics, inflation, and interest rates.
The equity market then eased into the close, sustaining losses that were moderate in nature, as yields on the 10-year Treasury note edged up, as noted, to 3.11%, The return on the companion 30-year Treasury bond, meantime, ticked up to 3.25%. One impact of the higher yields is the lesser appeal of dividend stocks returning similar amounts, as the government paper is risk free. Yesterday's drop in the high-yield utility stocks is indicative of the above. All told, the Dow ended up losing 55 points; the S&P 500 was off by just two points; and the NASDAQ. up and down all day, closed lower by 16 points.
Now, we conclude the week, which has been a choppy one, on the whole, and glance overseas,, to see that stocks were higher in Asia overnight. In Europe, the Continent's bourses are weaving a mixed pattern so far this morning. Also, oil prices are showing early small gains and yields on the 10-year Treasury note, which concluded matters yesterday at 3.11%, still are passing hands at 3.11%. Finally, U.S. equity futures are showing early strong gains, suggesting a higher opening when trading resumes at 9:30 AM (EDT) this morning.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
