After the Close
Stocks got off to a weak start this morning, but managed to firm up to some extent in the afternoon. By the end of trading, the Dow Jones Industrial Average was down about 36 points; the broader S&P 500 Index was off two points; and the NASDAQ was lower by 32 points. Market breadth showed a mixed session, as advancers and decliners were about even on the NYSE. From a sector perspective, some strength was seen in the energy issues. The price of crude oil firmed up to roughly $46.15 a barrel, which may partially explain the advances in the energy area. The telecom stocks, too, managed to make some progress today. Meanwhile, considerable weakness was found in the technology sector. Although computer and semiconductor issues have been standout performers for some time, recent softness may reflect concerns about valuations. Further, the high-yielding utility issues retreated, possibly owing to worries about rising interest rates.
Traders received no economic news items today, and this may have contributed to the session’s weak tone. Tomorrow will be a busier day for economic reports, as the Producer Price Index for the month of May is due to be released. Also tomorrow, the Federal Reserve begins its two-day (FOMC) meeting, which concludes on Wednesday afternoon with an interest-rate decision and some remarks. Most traders on Wall Street are anticipating that a small rate hike will be approved, and such a measure may make sense, given the state of the economy.
Elsewhere, not many leading corporations posted profit reports this morning. However in the broader corporate arena, shares of General Electric (GE – Free GE Stock Report) moved up after the conglomerate reported a change in its management.
Technically, equities pulled back a bit today. However, some consolidation is to be expected, and may even be constructive, given the level of the market. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EDT
Stocks are trading lower to begin the week in a continuation of the selloff in the technology sector that began on Friday. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is down 48 points; the S&P 500 is off five points; and the NASDAQ is the big percentage loser, falling 35 points. However, market breadth, while negative, is not that discouraging, especially on the New York Stock Exchange, where losers outnumber winners by only a narrow margin.
The day’s big story is the rotation out of tech stocks and into other sectors, such as energy and financials. The big technology stocks had turned in outsized gains until the tide turned on Friday afternoon. Coming into this week, the NASDAQ 100 still showed an 18% year-to-date gain and a 27% jump in the past 12 months.
But trees don’t grow to the sky and eventually stocks, in this case the big tech stocks, are subject to a correction. The good news is that investors are not shifting into the highly defensive sectors of the market, such as utilities and consumer staples, so much, which might indicate broader fears of the market’s overall direction.
Instead, energy stocks are a beneficiary of the move out of tech. Energy shares have suffered lately as the price of oil has dipped below $50 a barrel. Wall Street is concerned that fresh supplies from the shale fields of North America will outstrip OPEC’s production cuts. But those worries seem to have faded, at least temporarily, as energy sector valuations appear relatively attractive. Meantime, the price of oil in New York is up $0.69 cents a barrel, to $46.52.
In corporate news, Dow-30 component General Electric (GE - Free General Electric Stock Report) will be getting a new CEO, effective August 1st. Long-time chief Jeffrey Immelt is stepping down in favor of company veteran John Flannery.
Mr. Flannery will take up the search for business focus at GE, with a possibility that healthcare lines will be favored to a greater extent. General Electric is considered in many quarters to be one of the last of the old-time conglomerates. But that hasn’t translated into the type of stock-price performance investors would like to see.
Heading into the afternoon, the market is off its worst levels. – Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before the Bell
It was a mixed day of trading on Wall Street last Friday. The Dow Jones industrial Average finished the session 89 points higher, while the NASDAQ went in the other direction, shedding an eye-catching 114 points. The S&P 500 Index finished a few points lower. The primary culprit behind the weakness in the NASDAQ was a sharp retreat in the recently white-hot technology sector. Although the setback for the technology-heavy NASDAQ was disappointing for investors, the haircut may, in the end, be constructive for a market where valuations are looking quite stretched at the moment.
Overall, market breadth clearly favored the bulls. The small- and-mid-cap stocks finished in positive territory. And even with the sharp drop for the technology stocks, the NASDAQ Exchange had slightly more winning issues than losers, and there was a plurality of advancing issues on the New York Stock Exchange. Moreover, there were more than six times more stocks hitting 52-week highs than lows on the day.
From a sector perspective, it was an even split between up and down arrows among the 10 major equity groups. The leadership came from the energy and financial equities. The financial stocks will be in focus this week too, as we will get the latest monetary policy decision from the Federal Reserve on Wednesday afternoon (more below). Conversely, as noted above, there was heavy selling in the technology sector on Friday, with the biggest damage done by sharp retreats for computer hardware and semiconductor issues. The telecom and consumer (both cyclical and noncyclical) stocks also were out of favor.
Turning to the trading week at hand, the Federal Reserve, which begins its two-day FOMC meeting tomorrow morning, will be front-and-center on the minds of investors. The continued consensus is that the central bank will increase interest rates by 25 basis points on Wednesday. We don’t think the decision will have a big impact on the equity market, but the accompanying statement may have an effect on trading. If the Fed issues a more-dovish-than-expected statement it could prompt some buying. We shall see, but in the meantime, we would not be surprised if traders played it pretty close to the vest the next few trading days ahead of the FOMC decision. Maybe some investors that are skittish about the market’s frothy valuation will use the upcoming Fed decision as a reason to take some profits off the table. Perhaps, we saw some of that on Friday and maybe again this morning.
The Federal Reserve meeting highlights a busy week of data on the U.S. economy. Over the next five days, the investment community will receive reports on producer and consumer pricing, retail sales, industrial production, housing starts, and consumer sentiment. The economic data of late can be termed decent, which has recently called into question how many more times the lead bank may tighten the monetary reins in 2017. As noted, we may get some more clarity on that situation later this week, with the FOMC statement and a number of Fed leaders expected to speak.
With less than an hour to go before the commencement of trading stateside, the futures are indicating a lower opening for the U.S. equity market, with notable weakness again in the NASDAQ Composite. Overseas, the main indexes in Asia finished in the red overnight, with Japan's Nikkei 225 slipping 0.5% and Hong Kong's Hang Seng and the Shanghai Composite Index falling 1.3% and 0.6%, respectively. Likewise, the major European bourses are lower, as trading moves into the second half of the session on the Continent. Stay tuned. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
