After The Close
The futures market started out positively today, as the European Union Central Bank President Mario Draghi stated that it could roll out stimulus as early as July. This was seen as a positive for stock prices, as a stronger global economy would benefit from such action. Later, President Trump stated that he would be meeting with President Xi of China at the G20 meeting in Osaka, Japan, later this month. This caused a sharp rise in overall sentiment that the trade dispute could come to a resolution. The markets climbed higher in the early portion of the session, and the Dow Jones Industrial Average rose by nearly 360 points in the first hour of trading. The other indices made similar moves higher. After the initial charge, the markets traded in a sideways fashion throughout much of the session, as traders appeared to wait for any developments out of the Fed’s FOMC meeting. Overall, the Dow closed higher by 353 points, the S&P 500 was up by around 28 points, and the NASDAQ gained 109 points. Still, it should be noted that these moves came on surprisingly lower volumes when compared with average trading levels, which may suggest somewhat less conviction.
Overall, market breadth was very positive, as advancers outpaced decliners by a 2.9-to-1.0 ratio. Industrial stocks were among the best performers on the day, as a positive outcome between the U.S. and China would considerably aid sales there. Meantime, consumer staples equities were among the weakest.
In commodity news, oil prices were up today, as demand expectations rose alongside sentiment for worldwide trade. Meantime, U.S. Treasury bond yields were mixed with long-term interest rates falling. The VIX Volatility Index traded near breakeven levels today, suggesting that traders were not decreasing their options protection despite a notable move up in the stock market.
Looking ahead, all eyes will be on the Federal Reserve’s Open Market, which concludes tomorrow. We do not expect an interest-rate cut then, but traders will probably be looking for any details to see if the prevailing prediction of a rate reduction in July will hold up. Additionally, the Energy Information Administration will release its weekly status report on crude oil inventories. Meantime, a few companies are slated to release their quarterly earnings reports. Overall, we think the market will move in lock step with the Fed’s decision and accompanying statement.
- John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
A likely eventful week for Wall Street began yesterday morning with modest, but sustainable early gains for the stock market. On point, after a mixed opening, stocks righted themselves before the first half hour concluded and the market stayed in the plus column as the morning continued, with particular strength observed in the NASDAQ. The Dow Jones Industrial Average, meanwhile, stayed in the positive column by some 50-70 points as the central bank was getting ready to hold the latest FOMC meeting.
Regarding the Fed, expectations are that the bank will not reduce interest rates when it concludes its meeting tomorrow afternoon. Rather, it will adopt more accommodative monetary language that will probably lead to a rate cut at the next meeting in some six weeks. The rationale for the likely easier monetary stance is that the economy is softening, with growth likely to ease into the 2% range this quarter. The latest evidence of this slower business path were reports out yesterday showing declines in pending hone sales and manufacturing in the New York area.
The market, meantime, steadied itself after that initial morning buying and stayed higher into the afternoon, with the Dow holding its early modest gains and the NASDAQ, on strength in some tech names, pressing forward with some greater vigor. Capping the gains were concerns ahead of the Fed meeting and the increasing aggressive back and forth goings on with respect to China and tariffs. Some tariff retaliatory efforts by India was also rattling some traders to a degree, although there was relief that an accord was reached recently with Mexico.
But the major preoccupation was with the Fed and the FOMC get together, which will be commencing shortly. The big unknown, assuming the central bank holds rates steady, is the accompanying language at the conclusion of the meeting. Should the Fed signal that it does not intend to trim rates for a while, the stock market could suffer. But that is not the projected likely scenario. More likely is that the bank will suggest that a rate reduction will come at the late-July meeting.
The market then would drift about in modestly higher territory, although there would be some late erosion in the gains as understandable nervousness began to creep in as the Fed readied itself for the FOMC gathering today and tomorrow. In all, the Dow, once up 76 points, would close higher by just 23 points. The S&P 500 Index would add just three points, but the NASDAQ would tack on 48 points in part on strength in shares of Netflix (NFLX), which added nearly 11 points.
Looking ahead now to a new day, and as we await the start of the Fed get together, we see that shares were largely mixed in Asia in the overnight hours, while in Europe, the leading bourses are thus far moving higher this morning, following comments by the European Central Bank head. In other markets, oil prices are falling and Treasury note yields are down rather sharply ahead of the Fed meeting. Finally, as the start of the Fed meeting is at hand, the U.S. equity futures are showing early gains.
– Harvey S. Katz, CFA
