After The Close
U.S. equities closed an up-and-down week on a high note, with the bulls realizing a largely uninterrupted rally from bell-to-bell. The major averages spent the opening minutes in the red, thanks in part to an underwhelming April jobs report. Only 164,000 new positions were created last month, well below the 197,000 consensus forecast. Still, the 3.9% jobless rate reading and a $0.04 hike in hourly wages helped to offset uneasiness over the jobs figure. Overall, traders shrugged off the headline figure, as the latter data likely helped to mollify inflationary concerns that have pressured the equity markets in recent weeks. Advancing shares outnumbered declining issues handily, underscoring the all-inclusive nature of today’s run-up in value.
Indeed, despite the mixed messages from the jobs report, equities enjoyed their best session in several weeks, buoyed once more by a strong showing by Apple (AAPL – Free Apple Stock Report). The shares shot up after it was revealed that Warren Buffett upped his stake in the iPhone maker during the first quarter. This drove the NASDAQ and the Dow Jones Industrial Average especially higher. Moreover, chip suppliers Micron Technology (MU) and Advanced Micro Devices (AMD) enjoyed significant upticks today on persistent optimism stemming from recent smartphone sales. The technology sector was accordingly the day’s best performing equity grouping. Basic materials, financials and industrials also fared particularly well, while the noncyclical consumer goods group bounced back after a challenging week of trading.
Investors also kept an eye on several geopolitical developments today. The United States and China continue to hold trade talks, with Treasury Secretary Steven Mnuchin calling the discussions positive. While the country is reportedly prepared to announce additional tariffs on Chinese goods in the future, we believe the market has been somewhat relieved by the constructive approach to economic policymaking. Another international storyline on traders’ radar is the U.S.’s impending decision on new sanctions on Iran. President Trump is possible prepared to exit the 2015 Iran nuclear deal which investors expect would further tighten an already highly-priced global commodity market. Accordingly, the per-barrel price of U.S. crude oil approached $70 today, setting a three-and-a-half-year high.
Though the indexes gave back some of their daily gains in the final minutes, each finished considerably higher. With concerns about future earnings comparisons likely to weigh on sentiment in the coming weeks, however, we do not anticipate a prolonged running of the bulls. Rather, investors will continue to process newly released economic data as they relate to future monetary policy, as well as constant developments from the political sphere at home and abroad. 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 concerns are mounting on Wall Street. Thus, in spite of generally solid earnings, stocks have been struggling this week. To wit, after early strength on Wednesday, a somewhat hawkish inflation statement from the Federal Reserve after it concluded its latest FOMC meeting, sent the market racing for cover, with stocks falling back sharply. Then, yesterday morning, equities tumbled at the open, with the Dow Jones Industrial Average quickly falling by more than 200 points. The main problems are trade worries, as talks with China go forward, higher inflation and the threat of more interest-rate hikes, and global headwinds.
As noted, the market tumbled at the open. Then, the Dow got off the floor, for a time, and the 206-point initial setback was quickly trimmed to under 120 points. Still, there remains a cloud over this market, with an apparently worsening trade backdrop with China the main issue, at present. Here, our government is said to be considering taking executive action to restrict China's ability to sell equipment to telecom concerns. In addition to trade and interest rates (which the Fed is likely to raise at least two more times this year), there is the matter of the nuclear deal with Iran, with that country balking at the suggestion of any renegotiation.
So, the stock market stayed lower as the morning continued, with the Dow, under pressure from losses in industrial giant Caterpillar (CAT –Free Caterpillar Stock Report), soon fell back to a deficit of more than 350 points. That put this index further into correction territory, down below 23,600. At its peak, that composite was some 3,000 points higher. Then, there are the worsening legal problems for the President. That, too, is catching the Street's attention. So, the losses mounted until the session's nadir was secured as we approached the noon hour in New York when the Dow was off by nearly 400 points.
A dramatic turn then took hold, which would see the Dow erase that entire deficit, and then some, so that as we moved inside the final two trading hours, the blue chip composite would turn positive, although the S&P 500 and the NAADAQ were still a bit under water at that time. This comeback would gain as the afternoon evolved, with investors seemingly looking beyond the political, Middle East (notably with Iran), and tariff issues to focus on earnings. As these have been strong and the stock market was oversold, bargain hunting ensued. All of this was ahead of some logical angst in front of the April employment report (see below).
Things strengthened even further as we headed into the final stretch of the trading day, with the Dow approaching 24,000 for a brief span, up nearly 70 points. It looked, at the time, as if we would have a breakout to the upside. Instead, there would be some range-bound activity into the close, as the aforementioned jobs data kept anxious buyers at bay. In all, at the close, the Dow was just barely ahead, gaining six points, while the S&P 500 and the NASDAQ both were incrementally lower. In most cases, the moves were small, although medical device maker Cardinal Health (CAH), which had disappointing results saw its shares tumble 21%.
Looking out on a new day now, we see that stocks were lower in Asia overnight, as investors await talks on trade between the United States and China, while in Europe, the major bourses are showing some early strength. Meantime, Treasury yields, which ended at 2.95% yesterday, are now moving along at 2.92% this morning, following a disappointing jobs report. As to our futures, the early read is lower, on that disappointment. Regarding the employment situation, the Labor Department reported that the nation added 164,000 new non-farm payrolls in April. Expectations had been for an increase of 197,000 jobs. In another survey, the U.S. jobless rate eased to 3.9%. That rate had been expected to ease to 4.0%. It had been 4.1% in March.
Breaking the data down, we see that the labor-force participation rate came in at 62.8%, which was little changed from March. As to the job growth tally, the 164,000 new positions created last month was below the 191,000 average monthly gain for the past year. Importantly, average hourly wages ticked up by four cents in April, to $26.84. Over the year such earnings rose by 67 cents, or 2.6%. Finally, non-farm payroll growth for February was revised slightly lower, from 326,000 jobs to 324,000 jobs. For March, the revision brought the tally up from 103,000 to 135,000.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
