After The Close
The market started out strongly today, as the rally continued after yesterday’s Fed meeting. Chairman Powell stated that many FOMC participants saw a stronger case for rate cuts. This positive change in sentiment more than offset news that the Philadelphia Fed manufacturing survey was weaker than expected. The Dow Jones Industrial Average rose by 257 points in early trading, while the S&P 500 reached an all-time high of 2956.20 in the first few moments of the session. However, the market quickly became overbought, and the indices trended lower. In this move, a solid portion of the overnight gains were given back. The composites bottomed with the Dow up around 36 points, while the S&P was higher by just five points. After finally relieving the overbought condition, the markets returned to rallying through rest of the session. All told, the Dow finished up 249 points, while the S&P 500 was higher by 28 points.
Additionally, market breath was very positive, as advancers outpaced decliners by a 3.2-to-1.0 ratio. Energy stocks were among the best performers on the day, helped by a strong advance in the related commodities. Meantime, healthcare were among the weakest, though only on a relative basis.
In commodity news, oil prices were much higher today, as tensions increased between the U.S. and Iran, as the latter shot down an intelligence drone in the Straits of Hormuz. This caused traders to think there would be supply concerns, since a high amount of oil passes through that area. Meantime, U.S. Treasury bond yields were lower across the board, as expectations for future interest rates fell. The VIX Volatility Index closed just slightly higher today.
Looking ahead, some economic data will be released tomorrow, including existing home sales for May. This should show how strong the housing market is, and will likely be used by the Federal Reserve to determine future interest-rate policy. Additionally, a few companies are slated to release quarterly results. Too, we think trading tomorrow will be affected by any developments in the trade dispute with China or escalating tensions in Iran.
— 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
So, stocks moved along doing little more than marking time as the morning unfolded. In all, after the first hour of trading, the Dow Jones Industrial Average was up about 40 points, while the S&P 500 was essentially flat and the NASDAQ was slightly lower. Most of the guessing, as noted, was that the Fed would pass on a rate cut for now. Indeed, as the central bank meeting ended in the early afternoon, that is exactly what happened. Before that, though, the market continued to ebb and flow. As to the thinking at the time of a possible upcoming rate cut, most sensed that slower economic growth and lower inflation justified an upcoming reduction.
Of course, taking a more aggressive rate posture would hold risks. For starters, the economy is still strong, with unemployment at a half-century low. Also, should the Fed reduce rates this year, it would lessen its maneuverability in the event of a serious business downturn later on. Still, most believed before the meeting's conclusion that the bank would be on course to ease fairly aggressively, in spite of these risks. As to the market, stocks started to weaken somewhat after the first hour of trading, but no major move down developed. There was little temptation to buy or sell aggressively ahead of the meeting's conclusion.
Meanwhile, the market would spend the balance of the morning drifting slightly higher, but, logically, with no real conviction as the rate decision was awaited. In all stocks would move aimlessly about until the 2:00 PM (EDT) Fed meeting adjournment, as the Street awaited the monetary decision and commentary. As noted, the lead bank kept interest rates unchanged, but did not hint that a reduction in borrowing costs would be forthcoming soon. That adjustment in thinking, nevertheless, placated investors to a degree, as equities firmed after the commentary.
Specifically, the Fed adjusted its language somewhat, to a less upbeat appraisal of the economy's outlook. Still, for now, a divided Fed was suggesting that no rate increases were likely in 2019, though it did leave open the possibility that forthcoming business indicators could cause a further adjustment in its thinking, including voting for rate reductions this year. The market then would remain in the plus column into the close, with the Dow finally settling in with a 38-point advance. Gains of nine and 33 points, respectively, were tabulated by the S&P 500 and the NASDAQ, while gaining stocks held a comfortable lead on declining issues.
Looking out to a new day now, we see that stocks were higher in Asia overnight, while in Europe, the leading exchanges are seeing early strong gains. Also, oil prices are higher on intensifying concerns about Iran and Treasury note yields, off yesterday to end at just 2.03% on the 10-year vehicle, are now trading at 2.00% on rate cut hopes. Finally, the U.S. equity futures are pointing to a strongly higher opening when trading resumes a little later this morning, buoyed by greater flexibility at the Fed.
