After The Close
The stock market was subdued this morning, but picked up somewhat in the afternoon. The positive shift in direction started at around 2PM (EDT) just after the Federal Reserve weighed in with an interest-rate decision and some prepared remarks. Specifically, the central bank chose to leave rates unchanged, for now, but suggested that it would act in an accommodative manner in the future, if needed. The news was positive, but did come as a surprise, as the Fed suggested that a rate cut may not come until 2020, unless the economy weakens materially. Some investors may had been hoping for a reduction in rates sooner. Furthermore, sentiment may have been partially dampened by worries that a trade deal between the U.S. and China may not materialize in the immediate future.
However, leaders from both countries seem prepared to meet at the upcoming G20 Summit in Japan, which could be a positive development. At the end of trading, the Dow Jones Industrial Average was ahead about 38 points; the S&P 500 Index was up nine points; and the NASDAQ was higher by 33 points. Market breadth was favorable, as advancers were ahead of decliners by a roughly two-to-one margin on the NYSE. From a sector perspective, the defensive healthcare and utility names moved nicely higher, while the technology and basic materials issues put in a sluggish performance. Softness in these names may suggest that traders are still feeling risk averse.
There were few important economic reports released today, with the exception of the Federal Reserve’s announcement in the afternoon. Tomorrow will be a busier day. Specifically, we will get a look at the latest weekly initial jobless claims. Also, the Conference Board will deliver its monthly leading indicators report.
In the corporate arena, a few widely-followed companies delivered profit reports over the past 24 hours. Of note, shares of Adobe Systems (ADBE) moved up, after the software giant posted respectable results. Also in the technology sector, shares of Jabil, Inc. (JBL) gained ground, after that company delivered an upbeat report.
Technically, the stock market has regained its stride during the first weeks of June. Recent buying has positioned the broader S&P 500 Index not too far from the high ground reached in late April. While the recent strength is encouraging, it remains to be seen if the bulls can keep their buying campaign in place. Much will depend on future developments between the U.S. and China, which is still our key trading partner.
– Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
As to these two developments, the first one, involving Mario Draghi, the head of the ECB, who intoned that “in the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” got the ball rolling at the outset. Then, a tweet from the President in which he said that he planned to meet with China's President to hopefully hammer out a trade accord, really gave the buyers some incentive, with the Dow jumping from a modest initial gain to one of more than 300 points in a matter of minutes.
The market then would continue this solid showing over the rest of the morning and into the afternoon. To be sure, not everyone was happy with the ECB suggestion, with the President criticizing his remarks by noting that further ECB monetary stimulus would make it “unfairly easier” for Europe to compete with the United States. Meanwhile, in other matters, the government reported that housing starts eased slightly in May, while building permits, a more forward-looking metric, had edged just nominally higher over the prior month. Both series were below the corresponding year-earlier tallies.
Neither the housing starts data or the figures on building permits would alter the thinking of the bulls, who continued to buy stocks aggressively throughout the session, even though the decision by the Fed, out this afternoon at 2:00 PM (EDT), was still up in the air. Nevertheless, the market would not falter, and the buying would continue throughout, with the leading averages all staying near the session's highs into the close. That optimism could change, of course, as today rolls on, but assuming that the central bank will point towards a looser monetary as 2019 unfolds, we could see further gains over the course of this week.
Meantime, as noted, the rally continued into the close yesterday and when all the numbers were in, the major averages had booked stellar gains on the day. All told, the Dow would finish the session ahead by 353 points; the S&P 500 Index would be better by 28 points; and the NASDAQ, on the strength of notable gains in such high-tech issues as Apple (AAPL – Free Apple Stock Report) would conclude matters on the plus side by 109 points, making it the winner among the three large-cap indexes. The smaller-cap composites also would do well as would gaining stocks, in general. But yesterday was primarily a large-cap affair.
Looking ahead to a new day now, and sizing things up to this point, we see that shares in Asia were higher in the overnight hours on trade hopes between the United States and China, while on the Continent, yesterday's ECB indications on rates are not now having an effect on trading, as equities are pressing lower thus far this morning. Elsewhere, oil prices are stable and Treasury note yields, off again yesterday, are now edging up in early trading. Finally, U.S. equities are poised for an unimposing opening this morning if current trends in the futures market are sustained. How the market ends up will be based on the Fed, and our guessing is that no interest-rate reduction will be forthcoming just yet, but that the language by the bank will be dovish. Stay tuned.
