After The Close
U.S. equities generally moved higher on Friday, with advancing issues roughly doubling the number of declining shares. The major factors driving the bullish efforts were the solid May numbers for new home sales released by the Commerce Department, as well as positive comments from a regional Fed President who suggested the central bank’s near-term tightening policy could be eased in the future. Consensus expectations continue to point toward one more rate hike in 2017, likely during the December summit.
After spending the early part of the morning hours below their respective breakeven lines, each of the major indexes rose through the midday. The NASDAQ remained steadily in the black while the broad-based S&P 500 managed to hold on to a slight gain as the closing bell neared. The former, tech-laden grouping netted a more-than 28-point increase for the day. The Dow 30 was more challenged, however, but still managed to rise back right below the breakeven level by day’s end. But, while the indexes were more mixed, overall market breadth was aided by strength in the small- and mid-cap equity markets. The Russell 2000, accordingly, far outperformed the large-cap groupings on the day.
The bullish tint to today’s session was evidenced also in the market sectors. Nine of ten industry groups spent part of the day in positive territory, with financials and consumer cyclicals slipping nominally into the red as the afternoon progressed. Healthcare was the biggest laggard, losing an aggregate fifth of a percentage point on concerns that the GOP’s newly introduced bill to replace the Affordable Care Act faces an uphill battle on The Hill. Strength in the basic materials, industrials, and technology sectors, however, was more than enough to offset these worries.
Meanwhile, U.S. crude oil saw a slight reprieve today, breaking a four-day streak of losses and recovering roughly $0.28 per-barrel. The commodity remains in bearish territory, though, and hovered around $43. Ongoing pressure is surely to come in the form of global oversupply concerns, a headwind that has seen little relief from OPEC’s recent extension of its drilling accord. The slight rise today is probably more of a reflection of traders buying in at low valuations, rather than a suggestion of prolonged recovery, in our view.
Overall, the week went to the bulls, and the multi-month rally remains intact. Looking forward, after the first half ends next week, investor focus will begin to turn towards earnings. Analysts expect more solid profit growth on the corporate front, with company guidance still getting a boost from expected tax reform that is ostensibly still projected to be enacted by the end of the year. – Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 12:05 PM EDT
The U.S. equity markets opened today’s session on a down note, but after that early weakness stocks rallied, pushing the major indexes into positive territory.
Traders were likely encouraged by the Commerce Department’s report showing that new home sales bounced back in May. By the numbers, sales came in at an adjusted annual rate of 610,000 units, an increase of 8.9% over the prior-year, while the year-to date figure was up 12%, to 271,000 homes. Investors’ spirits likely also got a lift from St. Louis Fed President James Bullard’s comments suggesting that the lead bank could afford to take a pause on further rate increases.
As we crossed the noon hour in New York, the key U.S. indexes had come off their highs for the morning, but still up for the session. The Dow Jones Industrials were ahead by 14 points, the S&P 500 was up five, and the tech-heavy NASDAQ was showing a gain of 19 points.
Most of the major equity groups were in the green, led by basic materials and energy issues, each gaining about three-quarters of a percentage point. At the other end of the spectrum, healthcare stocks were down about a quarter percent, while consumer cyclicals were just below the breakeven mark. Advancing issues on the NYSE led declining stocks by a better than 2-to-1 margin. Elsewhere, oil was up nearly a full percentage point. The commodity was likely boosted by declines in U.S. crude inventories and reports that cutbacks among major producers were holding up.
Taking a quick look at the European markets, trading activity was mostly on the downside. London’s FTSE put in the best showing. After spending most of the day in negative territory, a late afternoon rally helped lift the index to just below the unchanged mark. France’s CAC-40 echoed this movement, though its recovery fell short of breakeven (down .25%). Meanwhile, Germany’s DAX had the toughest go of it, showing a loss of about half a percentage point as the closing bell approached.
– Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before the Bell
After gaining notably on Monday and pulling back moderately on Tuesday and Wednesday, the stock market sought to rebound yesterday. However, it initially had difficulty doing so, as worries about falling oil prices (with that volatility commodity dropping into bear market territory this week) continued to unsettle investors. Actually, oil perked up somewhat to start the day and that seemed to give traders a lift, so that any early pullback in stocks was contained. In fact, after the initial hour's indecision, the bulls returned to the fray, albeit cautiously at first.
This upturn pushed the Dow Jones Industrial Average up to a late-morning gain of some 45 points, while the NASDAQ, with strength in the biotech area, gained more than 20 points. The S&P 500 Index, the S&P Mid-Cap 400, and the Russell 2000 all gained, as well, but modestly. Rising stocks, meantime, moved out to about a two-to-one lead on declining issues. Also, the health care group led a charge that took in eight of the 10 leading groups. That sector's strength reflected the hopes that the revision of the Affordable Care Act, would lead to a reduction in overall medical costs.
As to the just-introduced legislative effort, the bill would continue to offer reimbursements to health insurance companies for subsidies for at least two years. It also would phase out Medicaid's expansion program. The Senate is expected to vote on the bill next week, where its future there may be in some doubt. Indeed, opposition from Republicans already is forming. In addition to the cost issue, health care stocks may be benefiting from some sector rotation. The market's ability to rally modestly through much of the day also reflected some bargain hunting on higher crude oil prices.
In addition to oil and health care, the market also was supported yesterday by favorable economic releases. To wit, the government reported that initial jobless claims came in at 241,000. That was in line with expectations. At the same time, the leading indicators were reported to have increased by a solid 0.3% in May. These metrics attest to the viability of the labor market improvement and suggest that business expansion is on target to produce GDP growth of better than 2% in the now-concluding quarter and a similar level of growth in the second half.
So, aided by these developments, the market continued to track higher as the afternoon progressed, with the averages all holding toward the upper end of the day's range, but not making any notable headway, as we reached the concluding hour of trading. At that time, the market's inability to move still higher brought in some sellers, and although the NASDAQ managed to hold onto small gains for the session, the Dow and the S&P 500 inched lower. Also, half of the leading 10 equity groups ended in the red, while gaining issues, once ahead by two-to-one on the Big Board, retained only a four-to-three edge.
Now, following this mixed close, we look out to a new day, and see that stocks in Asia were mixed overnight, while on the Continent, the principal bourses are tracking lower on concerns about oil. Also of note, oil is trading on a flattish line; gold is up modestly; and Treasury yields are inching higher. As to our equity market, the early read on the futures is now negative. Regarding news of note, the government will issue data on new home sales at 10 this morning. Earlier this week, the more stable existing home sales market showed a modest gain. This followed weaker data on homebuilding and building permits issued earlier in the month.
– Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
