After The Close
The market started out strongly today, as some trade restrictions on China’s telecom giant Huawei were eased. The Commerce Department stated that it would issue a 90-day license for some U.S. companies to continue working with that corporation. Many traders saw this as a decline in trade tensions, and sentiment improved. The Dow Jones Industrial Average was up by as many as 195 points in the early portion of trading, while the other indices followed suit. During the majority of the session, the markets trended higher, and the Dow was up by as many as 218 points at its high. The markets closed not too far off the highs of the day. All told, the Dow closed the day up 197 points, the S&P 500 was higher by 24 points, and NASDAQ increased 83 points.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 3.4-to-1.0 ratio. Materials stocks were among the best performers on the day, though the tech sector was not far behind. However, the consumer staples equities were among the weakest today, as traders reduced positions in those companies.
In commodity news, crude oil prices slipped a bit, as worries increased about future demand in the United States. However, these were buoyed some by increased tensions across the Middle East. Also, U.S. Treasury bond yields were higher across the board, as demand for the safe haven asset waned. Too, the VIX Volatility Index fell, as demand for options protection declined.
Looking ahead, a few key economic reports are slated for release tomorrow. These include the Energy Information Administration’s weekly report on crude oil inventories. Additionally, a few large retailers are slated to report quarterly results tomorrow. These could give some insight into how the consumer is doing. Still, we think much of the focus will be on any developments concerning the trade war with China.
- 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
The stock market got off to a very weak start to begin the penultimate week of May, with growing concerns about the intensifying trade conflict with China now weighing heavily on the investment community. The pain inflicted was especially severe early in the day yesterday in the technology sector, and in particular the chipmakers, who saw 2% and 3% losses in the early going. Not surprisingly, the NASDAQ, where so many tech behemoths are domiciled, fell sharply, at one point to the tune of nearly 140 points.
The latest selloff on the Street resulted from fears about the impact on major technology companies of the United States' crackdown on China's Huawei Technologies. The Dow Jones Industrial Average also was hit hard, at one point early in the morning to the tune of just over 200 points. But that early and sharp selloff was not sustained, and as we passed the one-hour mark of the trading day a strong comeback was under way. In all as we moved into the latter phases of the morning, the Dow nearly had recouped its losses, while the NASDAQ had reclaimed a third of it, but still was the day's weak link.
One explanation may have been that trade war news was getting tiresome, and even with that threat hanging over the market there was still enough positive things going on with respect to the economy, from supportive data, to strong earnings, and an accommodative Federal Reserve, to keep most market players satisfied, and in a buying frame of mood once enough selling transpired to get rid of any overbought conditions. And that seemed to be at play as we moved through the morning. And so the Dow, in particular, clawed its way back.
The recovery seemed as if it would gain additional traction after lunch, but a full comeback would not take hold. Thus, the key large-cap indexes would remain in negative territory throughout the session. As before, trade jitters remained the big worry for Wall Street. Meanwhile, Treasury yields ticked a little higher as the afternoon dragged on, but the indexes could not come all the way back. In fact, as we entered the final hour, the market began to stumble again, with the Dow falling back to a loss of more than 160 points briefly.
Things would then firm up anew, and that deficit in the Dow Jones Industrials would be pared to a closing loss of 84 points. The S&P 500 Index would surrender 19 points and the NASDAQ would decline by 114 points. Any way one slices it, this was an uninspiring way to start a data-filled week on Wall Street. As to the upcoming days, and in addition to tomorrow's release of the minutes from the Federal Reserve's last FOMC meeting, the week will also see the latest releases on new and existing home sales and non orders for durable goods.
Finally, we now look ahead to a new day on Wall Street and see that the major markets were mixed in dealings overnight in Asia. In Europe, the markets are thus far showing early gains on slightly easing trade tensions. Oil prices, meantime, are edging up on U.S.-Iran tensions; Treasury note yields are flat ahead of existing home sales data; and U.S. equity futures are up nicely in front of the opening bell.
– Harvey S. Katz, CFA
