After The Close
The U.S. stock market opened notably lower this morning, as traders worried that the implementation of tariffs will lead to problems with international trading partners. This issue has been the cause of considerable market volatility this year, and has not been well received by Wall Street.
At the close of trading, the major averages finished near their session lows. The Dow Jones Industrial Average was down 252 points; the broader S&P 500 Index was off 19 points, and the technology-heavy NASDAQ was lower by 20 points. Market breadth showed underlying weakness to the session, as declining stocks outnumbered advancers by a roughly two-to-one margin on the NYSE. From a sector perspective, the consumer and industrial issues led the market lower. In contrast, the technology group managed to display some relative strength.
It was a busy day for economic news. Specifically, personal incomes rose 0.3%, with spending rising 0.6%, for the month of April. The spending figure was stronger than had been anticipated, and may have some investors worried about inflation. In other areas, pending home sales dipped 1.3% in April, where analysts had been looking for a modest advance. Finally, the employment situation has returned to the spotlight. Today it was announced that initial jobless claims declined to 221,000 in the week of May 26th, which was a lower reading than had been anticipated. Tomorrow, the government releases the May employment figures, and traders will be closely watching that report.
In corporate news, a handful of large retailers weighed in with results over the past 24 hours. Of note, shares of Dollar General (DG) sank after the discount retailer delivered a weak report. In contrast, shares of Burlington (BURL) moved higher in response to an encouraging release. Elsewhere, shares of GeneralMotors (GM) surged on reports that Japan-based Softbank will be investing in the company’s autonomous driving ventures.
Technically, the stock market remains volatile. While the corporate outlook in the United States remains encouraging, traders may be worried about the domestic and international political landscape.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The sense, perhaps, that Tuesday's selloff in the equity market was overdone, helped stocks abruptly shift gears yesterday morning. In all, the Dow Jones Industrial Average, which tumbled almost 400 points on the day following the conclusion of the long Memorial Day Weekend, after having been off by some 500 points earlier, jumped by 175 points in the first few minutes of trading in the latest session. A recovery in oil, a rise in bond yields (they had tumbled on Tuesday in a flight to safety), and some stability in the euro combined to lift stocks early and strongly.
On Tuesday, it had been fears about Italy's future in the euro zone that had taken the measure of the bulls. And although that troubled country, with its uncertain political and economic future, is still high on the list of worries, the buyers somehow managed to return to the action early in the day yesterday. In fact, after that initial burst, the gains increased, with the Dow's advance topping 200 points, as traders awaited the 2:00 PM (EDT) release of the Federal Reserve's Beige Book economic summation (see below). Meanwhile, it was not just the Dow, but the other indexes and the market, in general, that shined.
Specifically, gaining stocks were ahead of losing issues by a four-to-one tally as we headed toward the final stages of the morning, with eight of the top ten groups in the ascendancy. This stellar recovery would continue into the lunch hour, with a number of weak issues on Monday, such as the industrials, doing much better. In other news, the government issued revised first-quarter GDP data, with the nation's opening-period advance easing slightly from the 2.3% gain reported a month ago, to 2.2% now. This rise also was less than in the fourth quarter (2.9%), but well ahead of the year-earlier 1.2%.
Importantly, this 2.2% increase in output is likely to be the low point for the current year, with growth probably edging past 3% in the second three months, and then holding on that higher plateau during the concluding half. That level of activity should not fuel a notable surge in inflation, so the Federal Reserve can probably sustain a moderately tighter monetary path. Meantime, as the market strengthened further, Treasury note yields held steady at 2.86%, which was sharply higher than the prior close of 2.77%. All of this occurred as the Street awaited the Beige Book.
The market's bullish resolve then stiffened as the Beige Book was about to be released, with the Dow climbing to a gain north of 330 points. As for that issuance, it essentially noted that the economy was continuing to expand at a moderate pace, which was about as expected. Thus, the stock market, already up decisively on the day, largely marched in place over the remainder of the session. Most areas of the economy were doing nicely, with few outliers. This would suggest that next month's FOMC meeting will conclude with another interest the increase. A follow-up rise in rates would seem likely in September.
All told, the day concluded with the market near sessions highs, with the Dow up 306 points and the Russell 2000 eclipsing past highs. Elsewhere, the euro edged up slightly, while Treasury yields jumped ahead, helping the banking group retrace the prior session's losses. Crude oil rose, as well, sending the energy group to the day's best performance. Also doing well were the basic materials stocks and the industrial issues. Now, the market will turn overseas for a first glimpse of the new day and the final session of May.
As to the day ahead, stocks in Asia were higher in overnight dealings, while in Europe, the major bourses are telling a slightly more positive story in early action. Moreover, oil prices, down on Tuesday and up yesterday, are tracing a mixed pattern this morning; the euro is up grudgingly; and Treasury yields are nominally higher. Finally, the U.S. futures now are implying that a nominally better start is ahead for traders in New York.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
