After The Close
Stocks finished Wednesday on a firmer note than they began the day with following a dovish interpretation of the minutes of the Federal Reserve’s latest meeting.
Trading began with a weak framework as a result of market selloffs in Europe and Asia. Sharply rising bond yields in Italy and a steep decline in Turkey’s currency were taken as signs of underlying problems, and cause for concern. The potential for scheduled talks with North Korea to fall apart also hinted at possible unresolved trading issues with China. A strengthening dollar weighed on sentiment, too.
The slightly negative tone that prevailed at the opening bell wasn’t lifted by an uninspiring mid-morning report on new-home sales. To be sure, demand for housing remains strong. But land and labor shortages, zoning restrictions, and rising interest rates have slowed the market’s forward momentum, notably at the less expensive end of the price spectrum.
There were some bright spots in the retail sector, though. Shares of Tiffany (TIF) and Ralph Lauren (RL) surged after these companies topped earnings estimates and noted strong business trends.
But stocks for the most part remained broadly lower ahead of the 2:00 p.m. EDT release of the Fed minutes. Investors liked what they heard from the central bank, if some of it was expected. Another interest-rate hike is ahead, quite possibly next month, as part of a broad normalization process.
What seemed to be fresh was the thinking that the rate-hike cycle might not be as lengthy as in the past, as well as an implied tolerance for inflation to temporarily run higher than the Federal Reserve’s stated goal of 2.0%. That could mean less upward pressure on rates than earlier thought.
Of course, that doesn’t necessarily mean clear sailing ahead. The Trump Administration’s trade policies are viewed as having a wide range of potential outcomes. The associated uncertainties could dampen business sentiment and possibly spending in the interim.
But the tempered views on interest rates allowed the Dow Jones Industrial Average to post a gain of 52 points, after being down by more than 160. Meanwhile, the NASDAQ gained 48 points and the S&P 500 added nine points.
— Robert Mitkowski
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell
Wall Street started the session yesterday on an initial up note, following a big buying burst to start the week on Monday. However, yesterday's early advance, which was built on momentum from the day before, which had seen the Dow Jones Industrial Average climb by nearly 300 points on less-confrontational trade prospects with China, was much less vigorous than its predecessor. And as we moved past the first trading hour, the Dow had moved into the red to the tune of some 40 points. Losses also were tabulated by the small-cap Russell 2000 and the S&P Mid-Cap 400, as well, on nominal profit taking after Monday's big win for the bulls.
As to our relations with China, the on-again, off-again trade war has apparently been put on hold, at least for the time being, after that nation, the world's second largest economy, said that it would reduce levies on automakers. In all, the country said that it would pare its tariffs from 25% to 15% on certain vehicles. Shares of the principal U.S. car makers rose on the trade news. The less-confrontational trade musings helped the Dow to close above 25,000 on Monday, for the first time since mid-March. The early setback yesterday pushed the Dow back below that threshold.
The focus on trade is logical, as a very strong earnings season has wound down and there was no economic news of note either on Monday or yesterday to report on. That is changing now, as we are scheduled to get data on sales of new homes for April later this morning. A modest decline is the forecast there. Then, tomorrow, we will get data on existing home sales for April. In that case, the forecast is for a flattish showing. Finally, Friday will see the release of reports on orders for durable goods and consumer sentiment for the first part of May. None of these reports is expected to be market moving.
Meanwhile, the market stabilized in late morning, and as we neared the noon hour in New York, the major averages, save for the Dow, had come back over to the plus side of the ledger. And even the Dow had pared its worst losses of the session, but was still somewhat below breakeven. It seemed as if the lingering trade optimism had overcome the nascent profit taking at that point. The late-morning weakness in the Dow persisted into the first part of the afternoon, as that composite sank by some 70 points as traders returned from lunch. The small- and mid-cap indexes likewise went slightly negative.
Things continued in this divided non-directional fashion into the middle of the afternoon, with the Dow's loss generally holding in the 60-to-70-point range, while the other large-cap composites maintained small advances. Breaking things down more specifically at that time, there were just a handful of more stocks gaining in price than losing on the Big Board, while seven of the top ten equity categories were higher on the day, with the most notable advances coming in the telecom and financial groups. The industrials were the main laggards on the day to that time.
The market would then weaken as we entered the session's final hour, with the Dow's loss topping the 175-point mark, as we moved into the session's home stretch. The S&P 500 Index, in the green all day long, also fell into the red, albeit rather modestly. The final-hour selloff occurred after the President suggested that the much-hyped North Korea summit might not come off after all. He noted that whether or not it happened would be known rather soon. The summit was to take place on June 12th. That news served to counter the more positive trade expectations with China.
The direction of things changed little as the closing bell sounded, with the Dow, which came down sharply late in the day, ending matters off 179 points. Losses were sustained by all of the other indexes, with the S&P Mid-Cap 400 and the Russell 2000 about as weak as the Dow. Looking out at a new day now, we see that yesterday's late-swoon in New York has affected the markets in Asia, where red ink prevailed overnight. In Europe, meantime, the bourses are trading sharply lower. Also, oil is down and Treasury yields, which were flat in New York, are lower. Finally, U.S. equity futures are now suggesting a sharply weaker opening this morning when trading resumes after the President said that a trade accord with China may not be at hand.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
