After The Close
The U.S. stock market moved sharply lower today, as traders worried about mounting instability in Europe. Specifically, the political situation in Italy has become tenuous, with speculation that the country may choose to abandon the euro currency. While the U.S indexes managed to find some very mild support late in the afternoon, it recovered only a small amount of ground. At the close of trading, the Dow Jones Industrial Average was down 392 points; the broader S&P 500 Index was off 31 points, and the technology-heavy NASDAQ was lower by 37 points. Market breadth was negative, with losers outpacing winners by an almost two-to-one margin NYSE. All of the major equity sectors retreated, with sizable losses in the financial stocks. The basic materials issues were also quite weak. In contrast, the defensive utilities showed some relative strength. U.S. Treasuries also rallied sharply, as investors looked for safe assets.
On our shores, traders received some encouraging economic news. Specifically, the Conference Board’s Consumer Confidence Index delivered a reading of 128 for the month of May, which was a strong, but expected, result. Tomorrow, we will get a look at the Automatic Data Processing (ADP) employment figures for the month May. Further, the second estimate of second-quarter GDP is due out. Finally, the Federal Reserve will also release its latest Beige Book summation.
In the corporate arena, few visible companies posted profit reports over the past 24 hours. Of note, with the first-quarter earnings season now over, the pace of reports will likely slow down quite a bit.
Technically, the stock market clearly took a step back today. However, during the session, the S&P 500 Index managed to find some support at its 50-day moving average, at 2,670, which was encouraging. Looking ahead, the bulls will likely have to regroup, after today’s bearish performance.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:25 PM EDT
Political turmoil abroad--specifically in Italy and to a lesser extent Spain--rather than economic fundamentals are holding sway on Wall Street thus far today.
In all, with these concerns on the front burner, the stock market is tumbling along a wide front, with the Dow Jones Industrial Average, off all morning, now having crossed the 400-point decline line as the noon hour arrives on the East Coast.
The other indexes also are lower, but it is the Dow, with its heavy weighting in both industrial and financial issues, that has really taken the early pounding as traders return from the long Memorial Day Weekend.
The pummeling being taken by Wall Street also has sent oil prices, the euro, and interest rates skidding. Specifically, oil is down sharply on our shores, but is rising in Europe, while the euro has fallen to its lowest levels this year, hitting 1.16 against the U.S. dollar. Finally, yields on U.S. Treasury notes, which hit 3.12% on the 10-year instrument last week, are now down to 2.82% on those international headwinds.
In all, as the afternoon begins, the Dow is off 465 points; the S&P 500 is lower by 43 points; and the NASDAQ is in the red to the tune of 77 points.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions n any of the companies mentioned.
Before The Bell
Investors will soon return to the daily stock market grind following what we hope was a safe and enjoyable Memorial Day Weekend and after a generally positive week for stocks. As was the case in the latest five-day span, the focus of traders and investors is likely to be on off shore developments once again. Here, the possibly scratched summit with North Korea (although the sides seem willing to still talk) and our contentious trade relations with China are front and center. These matters, the jettisoned Iran nuclear accord, the inability to hammer out an enduring NAFTA accord, and now some political uncertainty in Italy, have placed the global backdrop on the front burner.
To be sure, while these items are critical and could be market movers for a while, especially given the conclusion of first-quarter earnings reporting season and the fact that the monthly employment report and the next Federal Reserve Open Market Committee meeting are still days and weeks away, respectively, the most enduring issues concern events stateside, including the economy and interest rates. Still, for the time being, at least, global issues may continue to play an outsized role for traders. Within days, though, the focus likely will return to the domestic fundamentals, as they normally do.
And for the most part, that prospective shift could be good news for stocks, as the economy continues to press ahead; upcoming quarterly earnings are expected to be positive, for the most part; and inflation, albeit on the rise, should not be a major worry. In fact, even assuming the Fed continues to raise interest rates, which is largely a given, the tightening path is likely to be fairly slow. So, stocks should continue to hold their own, especially if global events start to take a back seat. Meantime, things did start to calm down somewhat on Friday, although the market continued to move lower for much of the morning.
On point, the Dow Jones Industrial Average gradually moved out to better than a 100-point loss, before some retracement took place as the morning ended. Stocks then firmed somewhat as the middle part of the afternoon got under way and proceeded. Still, going into the final 90 minutes of the session, there were mostly down arrows, with the Dow still off by 80 points. The S&P 400 and 500 also tracked a bit lower, as did the small-cap Russell 2000. However, the NASDAQ managed to stay in the plus column for much of the afternoon, as oil prices, which tumbled in New York (see below), have little impact on this tech-heavy composite.
As to oil, a barrel of crude fell some 4% in New York and 3% on the Continent, as Russia and OPEC talked about easing their strict output caps. The energy group sold off in response. In all, the market was attempting to hold on in spite of the global headwinds as the session and the week wound down. Also declining were interest rates, with the yields on the 10-year Treasury note falling back down to 2.93%. Earlier this month, such yields had climbed past 3.10%. Then, as we headed toward the final hour, the Dow fell some more crossing the 110-point threshold for a time.
Meantime, in other news, the University of Michigan reported a strong, but still nominally lower, consumer sentiment reading for May, while we received news that new orders for U.S. capital goods decreased rather sharply in April, falling 5.7%. Overall, the entire business category (orders for durable goods) eased 1.7%. The pullback followed two consecutive monthly increases. In all, though, the economy continues to do nicely. But, for now, the focus is on the global arena, and, in response, the market continued to pull back as the session moved along into the final hour.
All told, when the final tallies were in, the Dow was off 59 points; the S&P 500 Index was down by just six points; but the NASDAQ, with strength on the technology side, was ahead a modest nine points. Also, as traders prepared for the weekend, we saw that a majority of the 10 core market sectors were lower, led down the losing path by the energy and basic materials categories, while losing stocks lead the way on the NYSE. Looking ahead now to a new holiday shortened week, we see that stocks were lower in Asia overnight, on geopolitical concerns; in Europe the bourses are now trending sharply lower amid political uncertainty in Italy. Finally, our markets look set to open in the lows column this morning on falling oil prices and the aforementioned uncertain political climate in Italy.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
