After The Close
The major U.S. stock indexes started today’s session on a solid note, and the uptrend was largely maintained throughout the entire session, snapping a two-day losing streak for the market.
Trading got off to a strong start following a better-than-expected jobs report. Altogether, the country added 263,000 positions in April, driving the unemployment rate down to 3.6%, marking its lowest level in 49 years.
Meanwhile, average hourly earnings were up 0.2%, but the 12-month increase remained unchanged at 3.2%. In other news, the Institute for Supply Management reported that the U.S. nonmanufacturing (services) economy has now expanded for 111 consecutive months. However, April’s reading of 55.5% (down from 56.1% in March) showed the slowest rate of growth since August of 2017.
At the closing bell, the 30-stock Dow Jones Industrial Average held a gain of just under 200 points and the broader S&P 500 closed ahead by 28 points. The tech-heavy NASDAQ came out on top, gaining 127 points or just under 1.6%. All of the 10 major market sectors were in the green today, with the strongest gains coming from basic materials (up 1.8%), consumer cyclicals (+1.3%), and industrials (+1.3%). The advance was broad based, with even the lagging groups, such as telecommunications, tacking on three-quarters of a percentage point or more. Altogether, advancing issues outpaced declining stocks by more than three-to-one.
The mood was also upbeat on the European bourses today, with stocks holding firmly to positive territory. Germany’s DAX led the charge, gaining just over half a percent, but the U.K.’s FTSE 100 wasn’t far behind, while France’s CAC-40 ended up modestly for the session.
– Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The stock market, which sold off dramatically and aggressively on Wednesday afternoon, started the session yesterday on a positive track, albeit a muted one, with the three major large-cap indexes putting themselves slightly in the plus column after the first hour's trading. The problem on Wednesday afternoon, which followed the Federal Reserve's latest FOMC meeting, was that Fed Chair Jerome Powell had signaled there was no reason to reduce interest rates now. The Fed leader also played down the significance of the current run of low inflation.
As a result, the stock market fell sharply late on Wednesday, with the Dow eventually settling in with a session-worst loss of 163 points. The S&P 500 Index and the NASDAQ likewise fell, with only a sharp rise in the stock of tech behemoth Apple (AAPL – Free Apple Stock Report) staving off an even worse profit taking setback. Essentially, Mr. Powell played down the risk that low inflation might be an indication of a weak economy down the road. In contrast, the President has been pushing for rate cuts at this time as a way of ensuring continued strong economic growth in the coming months.
The market, meantime, after this initial small rise, eased fell back anew, so that as we past the 90-minute mark of the trading day, the Dow was off 60 points and the S&P 500 was in the red by a couple of points. Among individual stories, one of the biggest losers on the day was Flour Corp. (FLR).The large engineering and construction enterprise shocked the Street before the market's open by posting a surprise loss and a revenue shortfall, and then seeing its CEO resign. The issue was off 23% in late-morning trade, as it hit its lowest price in a decade. The shares are off some 50% so far this year. By comparison, the S&P 500 Index is up 11%.
Then, as the morning drew to a conclusion, the stock market fell back sharply, with the Dow tumbling to a session-worst decline of 250 points, making it a better than a 400-point setback in two days. From there, however, a recovery started to take hold, and the key averages all came back, but did not enter the plus column. In all, as we reached the final 90 minutes of trading, the Dow was off by 140 points. In addition to Fed Chair Powell comments on inflation, investors were jittery about rising bond yields (the yield on the 10-year Treasury note rose to 2.55%), and the new in-fighting in Congress regarding Attorney General Barr's recent testimony.
The market then continued to track lower as we entered the final hour of trading, as investors balanced out the mostly good news on earnings against the sudden headwinds from the Fed. It is not that the central bank expects to raise interest rates anytime soon; it is just that there seems to be no rush to cut them. In fact, the odds on Wall Street of a rate reduction by December have fallen from more than 65% to about 50% in the last day. Among the bigger casualties on the Dow is the appropriately named Dow Inc. (DOW – Free Dow Stock Report). That company's forecast proved troubling and the stock fell back sharply in late dealings.
The market made yet one last move to pare its losses, and did so with uneven results, as the Dow Industrials would finish the day off by 122 points. The other large-cap indexes also fell, but the smaller-cap composites edged higher. Wall Street, in addition to everything else, was jittery ahead of the just-issued April employment report. As to that release, the Labor Department reported that the nation added 263,000 jobs last month; expectations had been for an increase of 185,000 new positions. At the same time the nation's jobless rate fell from 3.8% to 3.6%. Conversely, the labor-force participation rate eased from 63.0% to 62.8%.
Regarding revisions, the government also noted that total non-farm payrolls for February were adjusted upward from 33,000 to 56,000. The March tally was revised down from 196,000 to 189,000. In addition, the average workweek for all employees on private payrolls eased by 0.1 hour to 34.4 hours. Moreover, the average hourly earnings for all employees rose by $0.07 to $27.77. Wages were up 3.2% over the past year. Taken together, this was an excellent report, and not surprisingly, the Dow futures are suggesting a solidly higher opening. Now, the challenge will be to maintain these indicated gains, as a rate cut by the Fed now looks unlikely in the near or intermediate term.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
