After The Close
The premarket started out much weaker today, as worries expanded about the growing tensions between China and the United States overnight. The Dow Jones Industrial Average futures were down by as many as 300 points, while the other composites were off in tandem. The negative sentiment carried on through the start of trading, and the market slid further. It then reached lows beneath the premarket levels. Indeed, the Dow was lower by almost 450 points, while the S&P 500’s trough was down 51 points. Still, the markets rebounded a bit into the final portion of the session, recovering some of the losses. All told, the Dow closed lower by 286 points, the S&P 500 finished down 34 points, and the NASDAQ fell 123 points.
Additionally, market breadth was rather negative, as decliners outpaced advancers by a 3.7-to-1.0 ratio. Interest-rate sensitive utilities stocks and REITs were among the best performers on the day. Energy equities were among the worst, hurt by lower prices for the related commodities.
In commodity news, oil prices sank today, as fears about weaker worldwide demand shook the energy market. However, the U.S. Treasury bond market was much stronger today, as investors put money into the safe-haven assets. Too, the VIX Volatility Index was higher, as demand for options protection rose.
Looking ahead, few economic releases will be on tap tomorrow ahead of the Memorial Day weekend. Notable reports include durable goods orders for April. Too, the earnings calendar is light. Additionally, the U.S. bond market is closing at 2:00 p.m. tomorrow. We think changes in sentiment will likely drive trading, and expect investors to be reticent about holding positions during the three-day weekend.
- 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
Another day, another series of ups and downs for the recently volatile stock market. To wit, after equities had fallen back sharply on Monday on trade concerns and bounced back notably on Tuesday, most groups and individual issues fell back again early yesterday morning. And once again the catalyst was trade concerns. In all, the initial setback sent the Dow Jones Industrial Average down by about a hundred points, before a recovery took hold. The main casualty in this moderate selloff was Qualcomm (QCOM), which fell 10% at the outset after a U.S. judge ruled that the chipmaker had violated antitrust laws by unlawfully suppressing competition.
Another trade matter, and this one a positive change for investors on Tuesday in which some restrictions against China's telecom giant Huawei were eased had been the major reason for the market's Tuesday recovery. In any event, stocks did another about face early yesterday. Also, retailers were under pressure again yesterday after home improvement retailer Lowe's (LOW) posted weaker results in its latest three-month span. Further, investors were skittish ahead of the release of the minutes from the last Federal Reserve FOMC meeting.
As to the Fed, St. Louis Fed President James Ballard said the central bank may have raised interest rates too much last year. He said the December rate hike may not have been needed, apparently inferring that he was a bit worried about a business slowdown evolving in the months to come. But despite all this, the market just gave back a little ground in the morning, and after the first hour of trading, the Dow was off by just about 40 points. The market then fell back anew as the morning drew to a close, with the Dow again falling back by just over 100 points before staging yet one more partial recovery as the morning concluded.
The back-and-forth would leave the Dow down some 120 points as we moved into the early stages of the afternoon, with trade worries persisting and offsetting continuing optimism on earnings and the economy. Things would then not change appreciably as the FOMC minutes were released in mid-afternoon. That is because there were no surprises in the minutes, especially after the aforementioned James Ballard suggested that the Fed was in a good place with regard to interest rates. As to the minutes, the FOMC said that its patient approach to monetary policy could last for some time.
As for inflation, "despite concerns of the muted pace of inflation of 1.6%, according to the most recent reading, the Fed expects core PCE price inflation to move up in the near term, but nevertheless to run just below its 2% target over the medium term." So, with no surprises of note, the stock market would largely drift into the close, with red arrows continuing to predominate. Indeed, as trading drew to a conclusion, the market would selloff anew, with the leading equity averages closing down near session lows, as trade fears continued to be the headline event.
In total, the Dow would finish off by 101 points; the S&P 500 would be eight points lower; and the NASDAQ would fall by 35 points. The small- and mid-cap indexes, including the Russell 2000 also would falter, while there were more stocks down than up on the Big Board. Also easing were interest rates, with the 10-year Treasury note's yield falling below 2.40%. Some key losers among the market's more notable names would include Apple Inc. (AAPL – Free Apple Stock Report) on those trade fears, and Tesla (TSLA). That issue which had sold for nearly $400 a share in the last 12 months, is now below $200.
Now, a new day dawns and we look overseas to see that the major indexes were off in Asia overnight, while in Europe, the major bourses are trending markedly lower on trade and political concerns at this hour. Also, Treasury note yields are down rather sharply and oil prices are notably lower as stockpiles surge. Finally, the U.S. equity market seems poised to open this week's penultimate session materially to the downside as trade worries persist.
– Harvey S. Katz, CFA
