After The Close
Equities opened sharply lower this morning, remained weak during the afternoon, but recovered some ground late in the day, as some bargain hunters stepped into the market. Today, investors seemed quite concerned that the implementation of tariffs would lead to escalating tensions with our international trading partners, as well as hurt business for major corporations. At the end of the session, the Dow Jones Industrial Average was down 328 points; the broader S&P 500 Index was off 38 points; and the NASDAQ was lower by 161 points. Market breadth was clearly unfavorable, with losers leading winners by an overwhelming margin on the NYSE. Most of the major equity groups lost ground today, with pronounced weakness in the technology sector. In contrast, the defensive utilities advanced, as investors looked for safety in an uncertain market.
It was a quiet day for economic reports. However, new home sales rose to an annualized rate of 689,000 units during the month of May, which easily surpassed expectations. Tomorrow, the Conference Board releases its consumer confidence number for the month of June. It should be noted, that the housing market and consumer sentiment both remain quite strong and continue to lend support to the ongoing economic recovery.
In the corporate world, few companies reported their quarterly numbers over the past 24 hours. However, we did hear from Carnival Corp. (CCL). Shares of the cruise operator moved lower, on concerns about higher fuel costs. In the M&A space, shares of Campbell Soup (CPB) moved up on acquisition-related speculation.
Technically, the stock market started to pullback in the middle of June. Today’s selloff clearly does not help matters. At the end of the month, the second quarter will come to a close. Perhaps, if the corporate reporting season demonstrates some progress, the markets will be able to regain their footing.
— 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
The name of the game on Wall Street last week was once again sector rotation. In recent months, as the trade relations between the United States and China have deteriorated—with threats of tariffs by the U.S. and retaliatory actions by China—we have seen rotation out of the large-cap multinational companies and into the more domestically oriented names. This has hurt the performance of the large-cap indexes, most notably the Dow Jones Industrial Average and aided the small-cap Russell 2000. On Friday, trading volume picked up significantly in the last hour of trading, with the Russell 2000 and the Russell 1000 in the spotlight, as the indexes went through their annual rebalancing.
In addition to the concerns about the escalating international trade tensions—and the impact that such would have on the health of the global economy—the market was driven by news from the Federal Reserve and OPEC last week. The two latter events, which came during the second half of the 5-day stretch, proved to be supportive for the U.S. equity market. After a more-hawkish-than-expected monetary policy statement following the latest FOMC meeting earlier this month, Fed Chair Jerome Powell walked back the central bank’s stance a bit. Mr. Powell said that the lead bank still sees some slack in the labor market and may still take a gradual stance with regard to tightening the monetary reins. This gave some support to equities that were hurt by trade war fears. Then on Friday, news that OPEC was going to raise oil production by a smaller percentage than originally expected, provided support for the recently out-of-favor energy stocks and provided another boost for equities, including some of the larger-cap names on Friday. Thus …
On the final day of trading last week, the Dow 30 and S&P 500 rallied by 119 and five points, respectively. Conversely, we saw some profit taking in the NASDAQ, to the tune of 20 points. The buying interest was not as seen in the Russell 2000 either, as has been the case in recent weeks. The small-cap index finished 20 points to the downside. Sector rotation was again on display, but quite different then what we saw earlier in the week. The large-cap names were in more demand than smaller-cap equities. Overall, it was a modestly bullish session, with advancing issues leading decliners on both the New York Stock Exchange and NASDAQ, to the tune of more than two to one on the Big Board. From a sector perspective, the leadership came from energy and basic materials groups, with a jump in oil prices having a major positive impact on the energy stocks. On the other hand, we saw some modest profit taking in the technology area.
Now, as the new week on Wall Street is set to begin, we expect the attention of the investment community to be on trade relations and the business beat, especially with roughly three weeks to go before the second-quarter earnings season commences. On the economic front, we will receive reports on new home sales (later this morning), durable goods orders, consumer confidence, and the final revision to the first-quarter GDP estimate.
With less than an hour to go before the state of trading stateside, the equity futures are indicating a lower opening for the U.S. stock market. And on cue, it is more trade talk from Washington D.C. that is weighing on the futures. Specifically, reports have surfaced that the U.S. Treasury Department is drafting controls that would block firms with at least 25% Chinese ownership from buying U.S. companies with significant technology expertise. It is another chapter in the escalating trade war between the Trump Administration and China. This news is roiling the world’s financial markets and, as noted above, will likely pressure U.S. stocks when the domestic market opens at 9:30 A.M. (EDT). Stay tuned.
— William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
