After The Close
After a strong open that appeared to presage another running of the bulls, the major U.S. indexes spent most of Tuesday trading in mixed fashion before shedding value as the final bell neared. With earnings season winding down, traders juggled divergent geopolitical developments between the United States, China, and North Korea. While the S&P 500 and NASDAQ stayed in positive territory for the bulk of the session, the Dow and small-cap Russell 2000 each struggled to advance above their respective breakeven lines. The former, in fact, dropped steeply, by as many as 200 points, in a busy final hour that saw each of the composites fall swiftly into the red. By the closing bell, declining stocks outnumbered gaining issues by a 1.4-to-one margin.
While the news front did reveal a more measured (and economically viable) approach by the White House with its trade negotiations with China, some uncertainty related to its North Korea strategy instigated a spate of selling that intensified in the final hour. Particularly within the Dow, traders grew concerned that the President’s anticipated June summit with the Korean ruler Kim Jong-un may not happen after all. But although the recent fears do undercut some of the recent hopefulness related to the Trump Administration’s foreign policy dealings in Asia, we believe the potential good stemming from China’s intention to limit tariffs on American cars and associated parts outweighs the bad. Nonetheless, we believe today’s selective selloff was mostly a reflection of investors collecting some profits after the rampant run up on Monday.
In fact, Boeing (BA – Free Boeing Stock Report), yesterday’s strongest blue chip components, led the losers on the Dow today. The mixed nature of today’s pullback is further revealed when looking at the market sectors. Financial, telecom, and utility stocks remained strong throughout the day, even in the face of late-day selling pressures. On the other hand, energy and industrial issues shed the most aggregate value, with cyclical consumer goods also faring particularly poorly. The slide in the energy sector was tied to the price of domestic crude oil, which eased around $0.11 a barrel after setting a three-and-a-half-year intraday trading high.
Looking ahead, we expect developments on foreign policy with the above-mentioned countries will remain an influence on trading. But perhaps more impactful will be the market’s digestion of economic data and the inflationary pressures that could signal the Federal Reserve’s near-term monetary policy. The U.S. 10-year Treasury note yield was roughly flat today, at 3.07%. As always, stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
Strong suggestions that the looming trade war between the United States and China was being put on hold for the moment and a rash of deals announced during the morning session yesterday, helped to lift the stock market at the outset of trading. This upsurge would then continue through the morning and into the afternoon. As the first half of the trading day ended, the Dow Jones Industrial Average was ahead by 300 points; the S&P 500 Index was up by 20 points; and the NASDAQ was wetter by more than 40 points.
Leading the way higher were the industrials, led by Boeing (BA –Free Boeing Stock Report) and General Electric(GE – Free GE Stock Report), with the latter in a deal to sell its transportation unit. All told, each one of the 10 leading equity groups was higher at the halfway mark, with the industrial in the lead, while gaining stocks were leading declining issues by better than a two-to-one ratio on the Big Board. Of note, the surge in the Dow Industrials lifted that blue chip composite above 25,000 for the first time in more than two months.
The market would then continue its advance into the afternoon, with the Dow's gain going past 300 points for a time. The focus on trade and deals was not unexpected, as earnings season is winding down, and economic news often tends to be limited on a Monday. The business beat will be quiet again today. Things then get busier over the rest of the week, with metrics on new home sales on Wednesday along with the minutes of the last FOMC meeting. Existing home sales data are then out on Thursday, while orders for durable goods are issued on Friday.
In other news, yields on Treasury notes and bonds were little changed, with the return on the 10-year Treasury note holding at 3.07%, while the 30-year bond remained at 3.21%. The market then would hold in a tight range over the balance of the afternoon, with the Dow's advance staying in the range of 300 points. It would seem that Wall Street was betting that the trade talks will help in lowering temperatures on this vexing issue. The White House appeared to suggest that, for now, it would opt for negotiations over imposing new tariffs.
The market then held near session highs into the close, with the Dow ending matters with an advance of 298 points, which put the blue chip index at a two-month high, and above 25,000. Boeing wound up leading the way, with a gain north of three percent. Overall, the market was led by the industrials on that apparent trade truce. Other indexes pressing higher on the day were the S&P 500, which jumped 20 points, and the NASDAQ, which added 40 points. Little, therefore, changed from the mid-session showing.
Looking out on a new day now, we see that stocks were mixed in Asia overnight, while in Europe, the principal bourses are posting early gains on upbeat trade news and higher oil. In other markets, oil prices are edging upwards once again and yields on the U.S. 10-year Treasury note are at 3.07%, or just where they ended matters yesterday afternoon in New York. Finally, U.S. futures are now pointing to a solidly higher opening this this morning, with the Dow looking as though it will begin the session up by better than 50 points.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
