After the Close
After opening Wednesday’s session with a virtual running of the bulls, the major U.S. indexes each turned negative during the midday hours. This presaged an increasingly dramatic selloff into the afternoon that both saw small- and large-cap stocks steeply shed value well into the final hour of trading.
The Dow Jones Industrial Average, once up by a whopping 285 points, finished the day 130 points below its breakeven line. Only energy stocks managed to carve out a meaningful advance today (more on that below), while overall market breadth favored declining shares by a 2.2-to-1 margin. The VIX index, which tracks volatility in the S&P 500, spiked 10% higher, to a reading of about 17.50.
At odds for investor attention today were moderated messaging related to technology sanctions In China, which spurred the initial uptick, and a general rebalancing of portfolios ahead of the second quarter’s forthcoming conclusion. Fears over a trade war, though scarce as far as non-tech headlines went, likely loomed over some of the selling, as well.
The technology sector had performed exceptionally well in recent months at a time many other equities saw their stock prices falter before this week’s streak of bearishness from the bears. Accordingly, the NASDAQ fared the worst of the large-cap composites today, shedding nearly 100 points, or 1.25%. This was in spite of exceptionally auspicious opens by Netflix (NFLX), Facebook (FB), and Amazon (AMZN), among many other industry leaders. The financials grouping also struggled to regain its footing as today’s session wore on.
As for oil, the per-barrel value of U.S. crude oil soared to its highest level since 2014. The 9.9-million-barrel decline in domestic stockpiles was a pleasant surprise, to say the least, while strong statements from the U.S. regarding Iranian imports also supported the bullish rally. Specifically, officials indicated that it desired all countries to stop supplies from the Middle Eastern producer by November. Supply disruptions in Libya and Canada, as well as ongoing disorder in Venezuela, also favored domestic crude today.
Looking ahead to the rest of the week, we expect more rotational trading as the quarter wraps up. Thereafter, we suspect investors will begin anticipating Corporate America’s forthcoming earnings season. There are high hopes for tax reform-boosted results this round, though comparisons will become less favorable as the year progresses.
Of course, developments on trade figure to play an outsized role in day-to-day trading as well. In fact, the drop off in the final hour was largely due to a tariff-related warning from Toyota that suggested each car sold in the United States would increase in cost. 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
This recovery, which was halting at first, came even though Treasury Secretary Steven Mnuchin and trade advisor Peter Navarro had seemed to be at odds over just what the President's trade agenda really contained. Meanwhile, in other early news, shares of troubled erstwhile Dow Jones Industrial Average component General Electric (GE) rose more than 8% during the day after the company revealed a plan to spin off its health-care business and sell its stake in Baker Hughes (BHGE). Then, as the morning progressed, the red arrows largely disappeared and stocks rose en masse.
The improvement would then continue as the afternoon began, with the aforementioned strong gain in Apple helping the Dow to a better than a 125-point advance as we moved into the final 90 minutes of trading. Still, the uncertainty on the trade front was capping the comeback to some degree. However, the gains were widespread, if not overly strong, on balance, with just about all of the 10 major equity groups part of the upturn, led by energy, basic materials, and technology. Also, rising stocks held a formidable lead on declining issues as the session moved along.
Meanwhile, on the business front on our shores, the Conference Board reported yesterday morning that its survey on consumer confidence eased off modestly in June after improving in May. In all, that indicator scored a solid 126.4. That was down slightly from the 128.8 tallied in May. Additionally, consumers' appraisal of current conditions was relatively unchanged this month, although the percentage of Americans stating that business conditions were good decreased modestly from May. Overall, however, the report seemed to have little impact on trading, which focused primarily on our running commercial disputes with China.
The market then fell back as we hit the home stretch, with the Dow's earlier triple-digit advance wilting as the close drew near on those lingering trade concerns. Still, the market remained in the win column, if somewhat grudgingly, with the Dow, once up by more than 125 points, ending matters ahead by just 30 points. The NASDAQ, too, gave back ground, but also stayed in the black to the tune of 30 points, as well; the smaller-cap indexes nudged higher, too. All in all, it was a reassuring performance, despite the late pullback, following the difficult start to the final five-day stretch of the first half.
Now, a new day gets under way and for some direction we look at Asia, where the markets were lower in the overnight hours. Meanwhile, in Europe, the Continent's bourses now tell a slightly positive story. Elsewhere, bond yields, which held largely steady at 2.88% on the 10-year Treasury note, are now at 2.85%. Also, oil prices, up better than 3% yesterday, to above $70 a barrel in late New York dealings, are now passing hands at close to $71 a barrel on supply concerns. Finally, U.S. equity futures are following up yesterday's modest win with a likely loss at the open today on trade and oil fears.
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
