After The Bell
The U.S. indexes finished a difficult week of trading on a mixed-to-positive note Friday. While the NASDAQ and small-cap Russell 2000 struggled throughout, with the latter slipping for the second day in a row after hitting an all-time high on Wednesday. Today, the broad-based S&P 500 exhibited strength from bell to bell, while the Dow Jones Industrial Average realized the largest advance. The blue chip composite rose by over 180 points at its peak, before finishing the day about 119 points higher. Traders seemed to shrug off a new tariff-related development, preferring to buy in at reduced price levels, helping to end an eight-day losing streak. Overall, gaining shares outpaced declining issues by a 1.9-to-1 ratio.
Though the past few weeks have seen geopolitical issues valuations across the broader equity markets, the Dow Jones Industrial Average has been particularly impacted by recent developments. The index’s uninterrupted ascent today, despite President Trump’s suggestion that a 20% tariff on European automobile imports may be in order, is a reflection of just how sustained recent selling activity has been. Indeed, tension with China and European allies alike have introduced fears that a more protectionist foreign presence by the United States could lead to a trade war. For the week, the Dow lost over 450 points (1.84%).
Meanwhile, domestic oil prices were driven substantially higher after OPEC agreed to a moderate output hike. Concerns over an influx of foreign supplies, stoked primarily by statements from Russia and Saudi Arabia, into the market have decreased the value of U.S. crude oil in recent weeks. The gradual increase (Iran claims roughly 770,000 barrels per day should be expected) ostensibly reintroduced some optimism for hawkish investors. To wit, the per-barrel value of American crude rose nearly 5% today.
Looking ahead, we suspect updates from the geopolitical sphere to continue playing a major role when equity trading resumes next week. That, as well as scheduled updates from the business beat, will be relied on by traders attempting to forecast the corporate earnings outlook for the soon-to-be-completed second quarter. As always, 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
The stock market yesterday got a sampling of what trade and tariff disputes might mean for earnings, and investors didn’t like what they saw. Specifically, German car maker Daimler (DDAIF) warned that its profits would be less than expected as a result of newly minted import duties in China on autos built in the U.S.
That news, and the accompanying poor sentiment, helped to send the Dow Jones Industrial Average to its eighth day in a row of losses, in a 196-point tailspin. The S&P 500 fell almost 18 points, and the NASDAQ dropped 69 points. Some notable e-commerce consumer names on the NASDAQ, including Amazon.com (AMZN), dropped partly as a result of a Supreme Court ruling that allows states to collect sales tax from online retailers.
The broader concern remains that the ongoing tariff disputes will throw a wet blanket on international trade, and hurt corporate earnings. So far, the dollar amounts of the tariffs have been seen as manageable, but the trend is worrisome, with retaliatory tariffs by one side or the other escalating. There is also anxiety that discord on trade and tariffs will undercut business investment.
The Dow Jones Industrial Average has felt more of the pain from the trade disputes, given its large multinational roster of companies. The Dow is slightly in the red for the year, with the S&P 500 up modestly, although the NASDAQ and the Russell 2000 are showing healthy gains. There is a risk that this divergence may not last, though, if global supply chains were to be disrupted by tariffs and smaller companies’ operations were to be affected.
The unsettling headlines on trade and tariffs have to an extent drowned out good news on the economy and what is expected to be a very favorable period for corporate profits. Earnings season is still a few weeks away at this point.
In other markets, there is word that OPEC and its partners have agreed to a tentative deal to increase oil output by one million barrels a day, on paper, and 600,000 barrels a day in actuality. There is a need for more oil, given the decline of Venezuela’s pumping capacity and as sanctions take a bite out of Iran’s exports.
Oil prices rose on the breaking news, given that a larger actual increase had been feared.
Back on our shores, the U.S. equity markets are indicating a moderately higher open, although the uncertain feel to the near-term direction of trading, owing to tariff disputes, is still in the air.
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
