After The Close
The U.S. stock market, propelled by a solid jobs report, enjoyed a bell-to-bell rally during the final session of this holiday-shortened week. The country added 223,000 positions in May, a figure that exceeded the consensus estimate of 188,000. As outlined in our morning write up, there were some inflationary pressures unveiled in the form of higher-than-expected wage growth. But overall, the Labor Department’s release was a constructive one. The Dow Jones Industrial Average gained more than 250 points at its peak, though political and economic developments overseas probably limited an even-more-impressive advance like the ones realized by the S&P 500 and NASDAQ Composite. Underscoring the bullish tilt to Friday’s session, advancing shares more than doubled the decliners.
Elsewhere, domestic oil prices slipped on production concerns overseas and inventory worries at home. The former represents perhaps the more impactful storyline, as Russia and Saudi Arabia continue to mull altering the thus-far-successful international drilling accord. The nations may opt to boost their output by 1 million barrels per day as a means of limiting the effect of a destabilized Venezuela and the U.S.’s sanctions on Iran. Today’s downturn capped U.S. crude oil’s second weekly loss in per-barrel value.
Still despite the bulls’ notable strength today, the uptick was ultimately unable to offset the Dow’s geopolitically-driven selloffs on Tuesday and Thursday. The multinational blue chips are generally more exposed to global concerns, be they economic, military, or political, so turmoil in Spain and Italy and the potential consequences of tariffs imposed by the U.S. on many of its allies weighed especially hard on the index. The nation’s trade policy with China, sanctions on Iran, and the June 12th summit with North Korea (which is back on, as of this afternoon) are other developments worth monitoring in the weeks to come. The S&P 500 and NASDAQ, meanwhile, delivered respectable full-week advances.
Looking ahead, we continue to expect valuations to be challenged by ripples from the geopolitical arena. While today saw traders mostly looking past the looming potential of a trade war, we suspect developments on this front will play a bigger role until the Federal Reserve meets in about two weeks’ time. 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
As we turn the page from a generally decent May to June, we find that the bears had one last parting shot for the bulls, and it was delivered from the outset yesterday. On point, stocks traded notably lower at the open, as the United States announced tariffs on some key trading partners, notably the European Union, Canada, and Mexico, thereby further inflaming already difficult international relations. Specifically, the Dow Jones Industrial Average, a big loser on Tuesday, but a notable winner on Wednesday, fell abruptly yesterday morning, losing nearly 200 points in the first half hour of activity on this worrisome trade news.
What fanned the bearish flames was a decision by the Administration to impose tariffs on steel and aluminum from, as noted, the EU, Canada, and Mexico. Stocks in Mexico also fell. Also down yesterday morning were crude oil prices and interest rates, with the yield on the 10-year Treasury note easing from 2.87% earlier in the day to 2.83% after the lower open on Wall Street. Meanwhile, in other news, the Commerce Department reported that consumer spending increased by 0.6% in April. The personal consumption expenditures index, a favorite inflation guide for the Federal Reserve, inched up 0.2%, in April.
The selloff then intensified, with the Dow leading the way lower on those trade developments. Meantime, in corporate news, shares of General Motors (GM) soared in trading, jumping more than 10% in early dealings after Softbank Vision Fund said it would invest more than $2 billion in the carmaker's self-driving cars. However, while GM advanced sharply, the rest of the market faltered, with the Dow falling back more than 275 points, for a time, as we headed toward noon in New York. Meanwhile, although GM shares rose sharply on this news, the stock of TeslaMotors (TSLA), another self-driving carmaker, pulled back on this news.
The market's selloff would then persist into the early afternoon, and even intensify for a time, after the European Union, Mexico, and Canada all said they would respond to the U.S. tariff move, by tacking on their own levies. This admission by that trio helped send the Dow down by some 300 points in early afternoon before a mild bounce occurred. Thus, there was a lot of uncertainty in the equity market at that time. There also are unknowns with Italy and Spain, as well as in oil, and interest rates. Add in logical angst yesterday afternoon ahead of the monthly employment report, which was just released, and the market was shaky, indeed.
Stocks then limped toward the close, with some efforts to rally at least partially. Indeed, a one-time 315-point setback in the blue chip composite was whittled down notably, falling under 200 points, at one brief point. The NASDAQ, too, came back going positive on several occasions. At the end of the day, the Dow would be off by 252 points, while the NASDAQ would be 20 points lower. This focus on international events, meantime, may well continue for a time, at least after the jobs report is digested and ahead of the mid-month Federal Reserve meeting.
As to the employment report, the Labor Department reported that the nation added 223,000 non-farm payrolls in May. That was well ahead of the forecast rise of 188,000 jobs. At the same time, the jobless rate came in at 3.8%; that was below the expectation of 3.9%. In other aspects of the report, we see that average hourly earnings increased by $0.08; over the past year, the increase has been 2.7%. Also, payroll increases for March and April were revised from 135,000 and 164,000, respectably to 155,000 and 159,000. Taken as a whole, this report was reasonably constructive for the economy and the stock market. However, there should be some concerns about inflation, as the 2.7% average hourly wage gain over the past year is above the Fed's targets, but not dramatically so.
Looking overseas, we see that stocks in Asia were mixed in overnight dealings, as trade issues loom, while in Europe, the major bourses are pushing higher at this hour, led by the banks. In other news, oil prices, in retreat yesterday, are now off again; the euro is nominally lower; and yields on the 10-year Treasury note are up at 2.92%, after closing the day yesterday at 2.82%. Finally, with the jobs data in hand, the U.S. equity futures are trending nicely higher at this hour.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
