Before The Bell
Wall Street strode into yesterday morning's session on an emotional high, following days of strong equity market activity, with the gains particularly impressive this past Friday and Monday, when the Dow Jones Industrial Average had jumped by some 1,300 points combined. Stronger employment numbers issued Friday and optimism about the rapid reopening of so many of the nation's businesses were responsible for the continuing rapid recovery in the stock market.
Meanwhile, after these clear recent fireworks, investors entered the session yesterday with not only the pending FOMC meeting on their minds (with the Federal Reserve commencing its two-day gathering that will conclude this afternoon), but also, perhaps, concerned by rising P/E ratios. The elevated valuations reflect the sharp rise in equity prices over the past two plus months, and the corresponding lack of earnings improvement. In fact, all things being equal, P/E's could climb further in the coming weeks.
Also, the Street entered the latest standoff between the bulls and the bears in a somewhat overbought condition with stock prices having gone straight up with nary a let-up since late March. Since that time, for example, the Dow has gone from 18,213 to an opening price yesterday of 27,447. That is barely more than 2,000 points from its record high of just over 29,500. Similar performances have been recorded by the S&P 500 Index and the NASDAQ, with the latter, in fact, now in record high territory at roughly 10,000.
Nevertheless, with the market's pricey backdrop, Wall Street started the action yesterday to the downside, albeit grudgingly. However, after the first hour of trading, the NASDAQ was already in the green, where it would stay for the balance of the session, eventually closing with an advance of 29 points. The S&P 500 Index would stay in the red throughout the day, however, finally ending matters off 25 points. The Dow, a laggard for the entire day, would fall 300 points, after surrendering 420 points at the session's nadir.
As for the NASDAQ, its moderate gain was propelled by strength in big tech, most notably shares of Apple Inc. (AAPL), which soared by more than 10 points to an all-time high of $344 a share. Also gaining and reaching a record high was Amazon (AMZN), with that issue adding 76 points to a closing high of $2,600 a share. Another big NASDAQ winner was the streaming service giant Netflix (NFLX). On the other hand, stocks, which had benefited from reopening enthusiasm, were hit with profit taking.
Looking ahead to a new day now, we will be awaiting the Federal Reserve's interest rate decision; at that time (approximately 2:00 PM (EDT) we would expect the central bank to announce no change in borrowing costs. But the Street will be closely following the Fed's accompanying monetary statement for hints of its future course of action. As to the market in the day ahead, the early read on the equity futures is somewhat positive.
– Harvey S. Katz, CFA
At the time of this article's writing, the author had positions in AAPL.
