After The Close
The markets started out positively today, as sentiment improved thanks to some better-than-expected economic news. Investors were likely reassured by the release of initial jobless claims that met expectations. Thus, the Dow Jones Industrial Average rose by as many as 92 points in the early portion of trading, while the other indices rose in tandem. The markets initially rose after first-quarter U.S. GDP growth was revised down to 3.1%, a narrower decline than the Street had expected. Afterwards, the composites quickly fell to around breakeven levels. Though a rally was staged, the markets could not break the prior highs, and the downtrend continued. This led to losses across all of the indices for much of the session. Still, stocks rebounded a bit to move back into the black in the final portion of trading. All told, the Dow finished the day up 43 points, the S&P 500 was higher by six points, and the NASDAQ gained 20 points.
Additionally, market breadth was rather directionless, favoring neither the advancers nor the decliners. Consumer discretionary stocks were among the best performers on the day, while energy equities were among the weakest. The latter was hurt by a decline in the related commodities.
In commodity news, oil prices fell today, as a decline in inventories was less than expected, suggesting some oversupply. Meantime, most U.S. Treasury Bond yields fell, as a flight to the safe-haven asset occurred. However, the three-month yield was higher, suggesting that traders have shied away from near-term notes. The VIX Volatility Index was lower today, as demand for option protection fell a bit.
Looking ahead, tomorrow will have a notable amount of economic data released. This will include the University of Michigan’s final reading for May on its consumer sentiment index. Too, personal spending and personal income for April are slated for dissemination. This will provide some insight into how the consumer is doing. The earnings front appears to be much lighter by comparison. Overall, we think that trading will focus on any developments in the U.S. trade negotiations with China or any further economic news.
- 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 stock market, which had come out of the long Memorial Day Weekend with high hopes for a resumption of the earlier 2019 rally, and indeed began Tuesday's trading on a brief up note, soon saw those hopes dashed. The problem was only slightly related to the latest doings on the international trade front. There, concerns linger about our ability to forge a trade deal with China amid increasingly tense and frayed relations with that nation. But on Tuesday, the bigger problem was the emerging fears that the sudden plunge in bond yields was pointing to a possible recession later this year.
With that worry in hand, a short-lived rally of some 130 points in the Dow Jones Industrial Average would eventually give way to a 238-point loss on the session on Tuesday--a swing of nearly 370 points. Then, yesterday, serious reversals in Asia and Europe began a lower session that would quickly see the Dow fall by another 237 points. And once again the issue was sliding bond yields. On point, the yields on the three-year Treasury note were now above the return in the 10-year note, with that latter yield falling to 2.23%--a near two-year low.
The drop in the stock market would continue after the first two hours and as we neared the noon hour in New York the blue chips were still down well over 200 points. The S&P 500 Index, meanwhile, fell below 2,800 for the first time since March. Also getting hit hard were the banking issues as bond yields continued to plummet. Of course, trade with China and our increasingly bitter back and forth is playing a role in the sudden descent in the market. Indeed, stocks would fall into the noon hour with the Dow's drop surging past 400 points very late in the morning.
The market then continued to hold near session lows as the afternoon got under way, with the Dow staying down between 300 and 350 points, for stretch during the lunch hour. However, as has often been the case, there was an attempt to stage a comeback after lunch and with some success, with the Dow's drop going inside 250 points for a time in mid-afternoon. But as the session moved into the latter stages of the day, the market faltered anew, with the averages all moving back toward the day's lows as the final hour of trading began. It was the same story once more, with an elusive trade deal and lower interest rates hurting sentiment.
Things did not improve through part of the final hour. However, as we moved inside the final 30 minutes we did see some renewed buying. That late comeback, albeit a partial one, would still pare the day's deficits somewhat and ensure that we did not have a meltdown in the final few minutes. In all, the Dow would close down by 221 points; the other averages did poorly as well as declining bond yields have put the idea of a possible recession later this year. We still view that as just a modest risk, but clearly is one that is greater than seemed likely a week or two ago.
Looking out now on a new day, we see that yesterday's selloff was followed by further losses in Asia overnight, while in Europe, the leading bourses are trading with early gains in spite of the escalating trade tensions. In other markets, oil prices are climbing; Treasury note yields, which closed at 2.24%, are at 2.27% this morning, even with the growing recession fears. That is leading to a likely higher opening start for U.S. stock market when trading resumes on our shores this morning.
– Harvey S. Katz, CFA
