After The Close
The market started lower today. Stocks continue to slide in reaction to yesterday’s Federal Reserve meeting. Chairman Powell suggested that there would not be an interest-rate cut in the near future. This was different from the prevailing sentiment on the Street. Too, this selloff occurred despite better-than expected factory orders for March and solid productivity gains in the first quarter. After an initial decline in prices, a brief rebound occurred for the indices allowing them to momentarily reach positive territory. However, the selloff then accelerated, and the Dow Jones Industrial Average fell by as many as 250 points. The other indices were lower in tandem. The selling quickly exhausted itself, however, as the composites appeared to reach an oversold condition. They started trending less bearishly throughout much of the day, but never reached breakeven. All told, the Dow closed lower by 122 points, the S&P 500 fell by six points, and the NASDAQ was off by 13 points.
Additionally, market breadth was somewhat negative, as decliners outpaced advancers by a 1.5-to-1.0 ratio. REITs were among the best performers on the day, while energy related stocks were among the weakest.
In commodity news, oil prices fell today, as supplies and inventory have continued to grow. This occurred despite the U.S. stopping waivers that allow other countries to purchase oil from Iran.
Meantime, U.S. Treasury bond yields were higher across the board. This was somewhat unusual, as yields tend to fall on days of stock market price declines, but this change was likely caused by traders adjusting their positions after yesterday’s Fed meeting. The VIX Volatility Index was higher, as demand for options protection rose.
Looking ahead to tomorrow, a significant amount of economic data is slated for release. This will include the ISM nonmanufacturing index for April. Too, nonfarm payrolls and the unemployment rate for April are expected. These reports will likely be used for consideration when the Fed sets interest-rate policy. Additionally, earnings season will continue tomorrow, as a few notable companies are scheduled to report quarterly results.
— John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
A strong earnings report from technology icon Apple (AAPL – Free Apple Stock Report) and a much better-than-expected issuance on private-sector job growth put out by ADP (ADP) combined to send equities up nicely at the outset of trading yesterday. As for Apple, a stock that has been up strongly in recent weeks, its positive release sent the shares soaring by more than $11, or 5.5%, in the early going. Regarding the payroll data, which came out 48 hours ahead of tomorrow's scheduled report on employment from the U.S. Labor Department, and it showed that 275,000 jobs were added last month--nearly 100,000 more than forecast.
So, the market ran higher, with the Dow Jones Industrial Average initially jumping by some 80 points. The NASDAQ, on which Apple trades, gained 40 points, or a much higher percentage. Overall, this earnings season is turning into a positive one, with some 75% of the companies in the S&P 500 Index having surpassed their bottom-line expectations. That solid showing is providing plenty of cover for the stock market. As for the economy, the ADP data is the latest indication that the business expansion is proceeding well. This upbeat issuance followed last Friday's report of a strong 3.2% gain in first-quarter GDP.
Then, at 10:00 AM (EDT), the Institute for Supply Management reported that its manufacturing survey came in at 52.8 for April, meaning that we had come through another month in which this sector expanded. (A reading above 50.0 signals improvement.) However, the rate of growth had eased from 55.3 in March, with new orders, employment, production, and supplier deliveries all gaining more slowly. However, the reaction wasn't all that material, as stocks continued to press forward after the release and stay in the plus column into the lunch hour.
The stock market would continue to head modestly higher through the first part of the afternoon, as investors kept one eye on earnings and the other on the looming Fed decision and accompanying monetary statement. However, while the large-cap indexes all rose, the small- and mid-cap composites suffered some selective setbacks. Then, the Fed concluded its confab with no interest rate change. The vote was unanimous. The bank cited low inflation (the rate of price growth remains below the Fed's preferred 2% target) as justification for the lack of an adjustment.
But whether this good rate news had been thoroughly factored in and thus incapable of rallying the market further, stocks, after an initial buying spurt, foundered, with the Dow and the S&P falling back toward session lows as we reached the final half hour of trading. The NASDAQ, too, stumbled into the red in spite of a strong rise in the shares of Apple. Then, as the session wound down, the market fell back sharply. Apparently, some investors had been hopeful that Fed Chair Jerome Powell would signal a near-term interest rate cut. He did not, affirming the economy's retained strength.
So, stocks backtracked, with the Dow falling to a session-worst 163-point loss; the S&P 500 shed 22 points; and the NASDAQ fell 46 points. The small-and mid-cap indexes declined as well, and losing issues topped winning stocks. It was, in short, a major and surprising late downturn. Will this selloff continue? For some sense of what is to come, we look overseas and note that stocks were mixed in overnight dealings, while in Europe, the early read on the bourses is lower. Finally Treasury yields, up slightly yesterday, are rising further at this hour and U.S. equity futures are poised for an early comeback this morning.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
