After The Close
The market started out stronger after the three-day Memorial Day Weekend. The Dow Jones Industrial Average rose by 131 points, while the other indices also gained ground in the first portion of the trading session. However, this positive sentiment quickly faded, and the markets started to turn lower, as traders began to focus more on a potential negative outcome in the trade situation with China and growing concerns about the U.S. and global economies. The composites moved lower to around breakeven levels for a solid portion of the day, choppily moving between the black and the red. In the latter portion of the session, the market continued the downturn, and moved decidedly into the red. In fact, the indices made their daily lows late in the day. All told, the Dow was down 238 points, the S&P 500 was lower by 24 points, and the NASDAQ shed almost 30 points.
Additionally, market breadth was negative as decliners outpaced advancers by a 1.8-to-1.0 ratio. Communications stocks were among the best performers on the day, while the consumer staples equities were among the weakest. This sector was hurt by negative price performance in tobacco-related names.
In commodity news, oil prices ended the day positively, due to flooding in the midwestern United States. Some traders think this will slow supply in the short term.
The consumer confidence report for May came in during the midmorning, even though it registered a higher-than-expected level, the report did not help the market averages much. In addition, U.S. Treasury bond yields were lower on most issues, as a flight to safety occurred. However, the three-month treasury yield rose, and a large brokerage house stated that the inversion of rates may be signaling a recession. Meantime, the VIX Volatility Index jumped, as demand for options protection increased.
Looking ahead, tomorrow’s slate will be somewhat quiet for economic news, as only the mortgage bankers indexes are slated to report. The earnings front will be a bit noisier by comparison, as several companies are slated to release quarterly results. Still, the Memorial Day weekend has pushed the Energy Information Administration’s weekly report on crude oil inventories back to Thursday. Overall, we think that trading tomorrow will be largely affected by changes in economic and trade sentiment.
- 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 seesaw battle between the bulls and the bears resumed again in the latest session. To wit, following a sharp selloff this past Thursday on concerns about a seemingly worsening trade situation with China, the stock market opened the final trading session of the week decidedly to the upside. And once again it was trade, with this most recent advance in equities coming after the President expressed optimism that there would be a quick resolution of the trade war. He also noted that a trade deal with China could lift tough restrictions on that nation's telecom giant Huawei.
So, stocks rallied from the start of trading, with the Dow Jones Industrial Average quickly climbing by some 180 points. The other indexes rallied as well. But the gains moderated after the first hour, or so, of trading, as some doubts apparently crept in about the optimism on trade expressed above. In fact, most investors are convinced that a trade deal will take longer than expected to get done. Meanwhile, whatever the outcome in the weeks ahead, it seems that trade is the only thing that investors are focusing on. In all, the Dow was working on its fifth week in a row of declines.
Meanwhile, even though the focus remains on trade, there are economic data still coming out. On point, after the report of flattish existing home sales on Tuesday and a release showing a market drop off, albeit from high levels, in new home sales on Thursday, the U.S. Census Bureau came out on Friday with a report showing a decrease of 2.1% in new orders for durable goods. That report covered April. Now, to be sure, this is a notoriously volatile series. However, this was just one more piece of evidence showing that the economy is beginning to show some wear and tear as we approach midyear.
Regarding the market, after that early buying burst and subsequent pullback, which left most of the averages with little or no gain for a time, stocks started to gain traction once again, and as the morning ended and the afternoon began, stocks had recouped much of their former momentum, with the Dow again rising by better than 100 points. The other indexes rallied in kind, as the Street appeared set to enter the long Memorial Day Weekend sporting nice gains. Still, even with this mid-session uptick, the Dow seemed headed for its fifth straight losing week, the longest such stretch since 2011.
The stock market's strength then persisted into the afternoon, with each of the large- and small-cap indexes showing solid, but not eye-catching, gains on the session. Little then would change as the session wound down and investors looked ahead to the long weekend. Aside from trade, a sharp retracement in recently strong oil prices, and a moderate rebound in interest rates, there was little of note going on, so stocks stayed range-bound into the close. At the final bell, the Dow was up 95 points, with just slight gains posted by the S&P 500 and the NASDAQ.
Now, following our long weekend in this country, we look out at the markets overseas and we see that stocks in Asia were trading with gains in the overnight hours, and in Europe, the principal bourses are showing slight early strength. In other markets, oil prices are climbing and Treasury note yields are again off notably. All of this is suggesting that the holiday-shortened trading week on Wall Street will start out showing little appreciable movement. Of note, the week ahead will see the release of the latest survey on consumer confidence.
– Harvey S. Katz, CFA
