After The Close
Following a broad-based selloff on Tuesday, U.S. stocks bounced back strongly today. Advancing shares outnumbered declining issues by a more-than four-to-one margin, as the small-cap Russell 2000 set an intraday high. The large-cap composites were similarly strong. The Dow Jones Industrial Average erased the bulk of yesterday’s loss, while the S&P 500 and NASDAQ both rose above last week’s closing level. It appears investors were happy to look past the concerns within geopolitical sphere today, though developments on that front are fluid, to say the least.
Indeed, each of the ten major market sectors added aggregate value today, a sign to us that bullish buyers were happy to take advantage of decreased entry levels. Energy shares were the biggest gainers by far during the session, though basic materials, healthcare, and industrials reclaimed a fair amount of value, as well. Financial issues were also particularly strong, as a slight uptick in yields and further deregulation speculation served to brighten the outlook of the banking sector.
True, the economy continues to grow and the Fed figures to be more accommodative in its monetary policy through at least 2018, while corporate earnings were strong as ever in the most recent reporting season. But traders have been increasingly focused on international tensions surrounding trade, military, and nuclear policies. Most recently, fear over a looming political crisis in Italy (and perhaps Spain, as well) has spurred some steep selling in the global equity markets.
Meanwhile, U.S. crude oil stormed back over 2% in per-barrel value today after it was reported that OPEC’s ongoing drilling accord was not necessarily in peril. This represents something of a sigh of relief for investors, especially following recent concerns that Russia and Saudi Arabia were mulling a loosening of the output cap that has helped to stabilize inventory levels.
Looking ahead, geopolitical updates will likely continue to add some intermittent volatility to the equity markets. As midterm election season heats up, we doubt the political influence on the market will abate much in the coming months. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
The start of the latest stock market session, following the long Memorial Day Weekend, was not what the bulls on Wall Street had hoped for. Stocks, under pressure from the worsening political turmoil in Italy, tumbled at the inception of trading yesterday. In all, within minutes of the open, the Dow Jones Industrial Average was off by more than 200 points. The other indexes, most notably the S&P 500, were down sharply as well. But it was the Dow, which is most sensitive to the global markets, given the dominance of some of the larger internationally dependent corporations in its makeup, that took the brunt of the selling.
This weak pattern would continue into the latter stages of the morning, as the market, following a brief, and unsuccessful, attempt to halt and retrace the losses, gave way to a second round of selling later on, which pushed the Dow to a morning-worst loss of more than 400 points. The sharp retreat, as noted, followed news of political turmoil in both Italy and Spain. The Dow's financial issues, namely Goldman Sachs (GS – Free Goldman Stock Report) and JPMorgan Chase (JPM – Free JPMorgan Stock Report), both were hit hard, as were several industrial concerns. The euro also fell on this news, dropping below 1.16--its lowest level of the year thus far--against the U.S. dollar.
Italy, the third largest economy in the euro zone, after Germany and France, has been struggling to establish a stable government since inconclusive elections in March. Spain, too, is undergoing some political drama. So, stocks faltered notably in the morning. In other markets, oil was mixed, falling stateside, but gaining on the Continent. Then, of course, there is North Korea, as that nation and the United States seek to hammer out an accord that would allow the two nations to hold a summit next month. In other news, the latest survey on consumer confidence came in near recent high levels. That index had little impact on trading.
The selling worsened into the lunch hour, with the Dow's loss swelling, as noted, to above 400 points. The S&P 500 Index, while down less aggressively, still lost more than a percentage point. The declines elsewhere, including on the NASDAQ, were less steep. The sharp pullback steepened a little more after the lunch hour, with the Dow tumbling to a loss of about 500 points. Fears about Italy and some concerns about the possible imposition of steep tariffs on China weighed down the market. There also were escalating fears about the banking sector after JPMorgan Chase said that trading revenues could be flat in the current quarter.
Things then changed little as we moved further into the afternoon, with the markets staying near session lows as we approached the final hour of trading. As before, the 30-stock Dow was the biggest casualty, retaining a deficit of nearly 500 points for much of the afternoon. Meantime, each of the top 10 equity groups was lower on the day to that point, with the steepest losses seen in the financial stocks, the basic materials groups, and the industrials, such as DowDuPont (DWDP - Free DowDuPont Stock Report), while losing issues retained almost a two-to-one plurality on gaining stocks on the Big Board at that time.
The market would then limp into the close, with some late buying erasing the worst of the session's losses. Still, the selloff in the bank issues and the industrials plus the threat to the sustainability of the euro zone was still keeping enough buyers at bay for the day to end with sizable deficits. All told, the Dow wound up falling 392 points on the day, in a very weak session on all fronts. One thing that did rise, though, were bonds, with yields (which go in the opposite direction of prices) tumbling. In all, the 10-year Treasury note, which had seen its yield climb to 3.12% recently, fell back to 2.77% yesterday on a dramatic flight to quality.
Now, a new day dawns, and we see that stocks were trading in Asia in the overnight hours following the deep selloff in our country yesterday, while in Europe, the source of the ill winds running though the market in yesterday's painful session, the leading bourses are trading in mixed fashion at this hour. Also, in other markets, oil is up slightly; the euro, a big loser yesterday, is little changed in dealings this morning, and the 10-year Treasury note is trading at a yield of 2.86%, after the close of 2.77% yesterday. Finally, U.S. equity futures are suggesting a nicely higher open when trading resumes later this morning.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
