After The Close
The stock market opened dramatically lower this morning, as investors worried that trade negotiations between the United States and China might be souring. Specifically, President Trump, seemingly upset at the pace of the talks, threatened to increase tariffs on goods from China. Meanwhile, the negotiations are ongoing and may still make some progress. It should be noted that stocks did manage to recover some ground in the afternoon, and this was an encouraging development. At the end of the trading, the Dow Jones Industrial Average was down roughly 66 points; the S&P 500 Index was off 13 points; and the NASDAQ was lower by 41 points. Market breadth showed a negative bias today, with declining issues outnumbering advancers on the NYSE. From a sector perspective, shares of technology and industrial companies were weak, as these businesses are heavily tied to China. Meanwhile, some defensive issues, such as the healthcare names held up relatively well.
In economic news, there were no major reports released this morning. Tomorrow will be a light day, as well. However, the pace should pick up later in the week, with numerous items due out on Thursday.
Elsewhere, it was a fairly light day in the corporate sector, even though the first-quarter earnings season is still under way. We did receive an issuance from Tyson Foods (TSN). Shares of the meat producer advanced today, as traders reacted favorably to a better-than-anticipated release. In the M&A space, shares of Anadarko Petroleum (APC) moved up on acquisition-related news.
Technically, the stock market has done quite well this year. While traders have been pleased with the strength of the domestic economy, some of the advance has likely been based on the notion that a trade deal with China would be achieved. Even after today’s news, Wall Street is still hoping progress will be made. At the very least, traders seem willing to take a wait-and-see approach.
- 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 major U.S. equity averages are set to open the new trading week markedly to the downside. Two events over the weekend will bring the bears out in force this morning. The investment community was mostly unnerved by a tweet last night from President Trump that said the Administration vowed to increase existing tariffs and levy some new ones on imports from China this Friday if the Asian nation doesn’t make some concessions in talks to reach a trade deal between the two bickering nations. The comments from President Trump come as a team from China is preparing to fly to Washington this week to continue trade talks. This news, along with reports that the United States is sending the USS Abraham Lincoln Carrier to the Middle East in response to troubling and escalatory indications and warnings from Iran, which has spooked investors around the globe. The major indexes in Asia, led by the China’s Shanghai Composite, tumbled over night, while the major European bourses are notably in the red, as trading moves into the second half of the session on the Continent.
The aforementioned events are likely to prompt some investors to invoke a “flight-to-safety” strategy this morning. The market entered this week with the CBOE Volatility Index (or VIX) trading at a level that clearly suggests that it is overbought, and when the investment community gets news that it deems troubling it is likely to result in some heavy selling like we are set to see today. We think investors should pay close attention to those industries that are likely to be hurt by an increase in tariffs. The equity futures are suggesting the technology, consumer, and industrial sectors will feel the wrath of Wall Street’s nervousness.
Today’s probable wild ride for investors is a stark contrast to the measured trading we have seen over the last several weeks. The most recent week of trading on Wall Street was a bit of a rollercoaster ride for those long equities, but in the end, none of the major large-cap indexes were far removed from the neutral line. There was an underlying bullish tone to the trading last week, as the small-cap stocks, which often tend to dictate the way the market heads, finished the five-day stretch to the upside. The Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index turned in flat weekly performances, while the small-cap Russell 2000 advanced 2.0%. There were a number of events that drove the market last week, including the continuation of the first-quarter earnings season, the Federal Reserve’s latest monetary policy decision, and employment data. All in all, the news made for a mostly positive reading, but those good tidings are certainly going to be put to the test this week, as the aforementioned trade news and geopolitical tensions take center stage for the investment community.
The international news will be even more prominent this week because the first-quarter earnings season is starting to wind down and the news from the business beat is rather light. On the earnings front we will still get some prominent reports, including the latest quarterly figures from entertainment giant Walt Disney (DIS – Free Walt Disney Stock Report) on Wednesday, but it will not come close to matching the heavy earnings news we have gotten over the past fortnight. Investors should note that the strong move to the upside from Apple (AAPL – Free Apple Stock Report) stock after the technology behemoth reported strong bottom-line results last week will likely be pared a bit this morning on the aforementioned trade news. China remains an important market for the tech giant so any tension between the world’s two-largest economies is going to hurt Apple stock and many of its fellow technology companies. Meantime, the news from the business beat will be limited, with the only notable reports on producer and consumer prices. That data, though, may be given close attention, with Federal Reserve’s commentary on inflation last week.
Speaking of the economy, last Friday was another big day for investors. Before the market opened, the Labor Department reported that nonfarm payrolls increased by a much-better-than-expected and a very strong 263,000 positions in April, and the nation’s unemployment rate declined to 3.6%. It was back-to-back impressive showings, and along with the 3.2% GDP gain in first quarter, another sign that the prevailing sentiment that the U.S. economy was slowing was overblown. The jobs data also may have given the President the needed ammunition to get tougher in the United States’ trade negotiations with China. The investment community responded nicely to the jobs data, with the Dow 30, the tech-heavy NASDAQ, the broader S&P 500 Index, and the small-cap Russell 2000 producing respective gains of 197, 127, 28, and 31 points. The broadbased buying was highlighted by the roughly 2% advance for small-cap stocks and the nearly four-to-one led for advancers on both the Big Board and the NASDAQ. From a sector perspective, the leadership was provided by the basic materials, industrial, and technology sectors.
– William G. Ferguson
