After The Close
Resurgent fears of a trade war and increased global oil supplies stoked a steep selloff for most of Friday, before a late-in-the-day rally ended up capping the indecisive week on only a slightly negative note. Indeed, news that the United States was planning to implement 25% tariffs on $50 billion in Chinese exports set the stage for the bearish tone that persisted through the early afternoon. The anticipated retaliation from Asia’s superpower only served to ramp up these geopolitical concerns. Both large-cap and small-cap equities faltered, with declining shares doubling advancing issues through the lunch hour. Only the non-cyclical consumer goods sector was able to wrap the morning meaningfully in positive territory, with energy and basic materials companies seeing their market values bearing the brunt of the selling.
Then, at about 2:30 EST, investors began to shrug off the trade-centric anxiety and took advantage of the reduced prices. Looking at the indexes reveals a similar story. As its components are more multinational in nature, the Dow Jones Industrial Average was the most impacted by this newest wave of tariff-related tension. The blue chip composite tumbled 250 points at its nadir, with Caterpillar (CAT – Free Caterpillar Stock Report) and Boeing (BA – Free Boeing Stock Report) contributing the most losses. But the Dow shed a substantial amount of its loss, and ended up roughly 85 points in the red. Meanwhile, both the S&P 500 and NASDAQ approached their respective breakeven lines at several points in the final two hours of trading. Market breadth was even by the time the closing bell rang, with small-cap issues rebounding considerably.
Elsewhere, domestic crude oil prices fell steeply after it was reported that Russia and Saudi Arabia intended to increase their output after a year and a half of restrained production. But unlike with the stocks impacted by trade worries, there was nary a sign of relief in this space with OPEC’s Vienna summit just one week away. For over a month, fears have mounted over the cartel’s tenuous (but largely effective) drilling accord, which appears to be losing support. The economic catastrophe in Venezuela, looming sanctions on Iran, and unexpected rises in U.S. stockpiles are the main reasons for the call for augmented drilling activity abroad. At its daylong low, crude oil had fallen more than $2 a barrel (and over 3%), before finishing the session barely over $65 a barrel.
Looking ahead, OPEC’s confab will be the primary focus in the energy sector, while the broader equity market’s movement will likely hinge on developments between the United States and China. A full-blown trade war would pose a major challenge for stock prices, despite ongoing strength on both the economic and corporate earnings fronts. As evidenced by today’s afternoon recovery, traders are cautiously hopeful that the relationship will not devolve to that point. 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
A seesaw stock market, which had moved up grudgingly on Monday and Tuesday and then faltered on Wednesday, as the Federal Reserve announced a more hawkish outlook on inflation and interest rates, began the penultimate session of the week nicely to the upside. In fact, within minutes after the open, the Dow Jones Industrial Average was up some 130 points. The catalysts for this latest uptick were strong economic fundamentals and increased deal making. However, this advance, which was notably focused in the technology space and the NASDAQ, proved brief; with the Dow giving back all of its gain and then some shortly thereafter.
The Dow would then stay in the minus column for the rest of the morning and into the early afternoon before firming up somewhat, but rather briefly, as we entered the final two hours of the trading day. Meanwhile, the technology driven NASDAQ built on its early strength and moved to yet one more all-time high by the formative stages of the afternoon. The NASDAQ was led by several big tech names. As to other influences, deal making was in the ascendancy once more, as it had been earlier in the week, with Comcast (CMCSA), the latest striving to buy media assets.
As to the blue chip index, strength in media giant Walt Disney (DIS – Free Disney Stock Report) was offset by selling in the financial group, notably JPMorgan Chase (JPM – Free JPMorgan Stock Report) shares. Shares of the bank group fell after the European Central Bank said it would hold off on raising interest rates until next year. That position contrasts with a more hawkish U.S. Federal Reserve Board, which voted to hike borrowing costs again in this country yesterday and suggested that two additional increases (in September and December) were now likely. Also helping to firm up the market were good metrics on the economic front.
On this latter count, the Commerce Department reported that retail sales increased by a formidable 0.8% in May, which was twice the gain forecast for the month, and allowed 12-month sales to jump up by almost six percent. helping this strong expansion, which should help boost second-quarter GDP by more than 3.5%, were sizable increases in sales at building materials shops, gasoline stations, food and beverage stores, clothing chains, and at general merchandise outlets. Interestingly, sales over the Internet barely improved during the month. This resilience by the consumers offset some of angst among investors after the Fed raised rates.
The market's bifurcated advance would then continue into the latter stages of the session as the Dow weakened anew, while the NASDAQ retained its strong upward tilt. Indeed, little would change into the close, which would see the Dow post a 26-point loss, while gains of seven and a dramatic 65 points were tabulated by the S&P 500 and the NASDAQ, respectively. Gaining issues also held the lead on the NYSE, where the tech sector advanced notably. The S&P Mid-Cap 400 and the small-cap Russell 2000 likewise finished higher on the day lending support to a generally positive session, overall.
Looking ahead to the closing session of the week, we see that stocks were trading in the minus column in Asia overnight, while in Europe, the Continent's principal bourses are moving cautiously lower in early action. Also, yields on the benchmark 10-year Treasury note, which eased off to 2.94% yesterday, are now at 2.92%. All of this should add up to a notably weaker opening when trading resumes stateside at 9:30 AM (EDT) today and as the United States prepares to slap tariffs on China.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
