After the Close
The bulls ruled the roost on Wall Street today, pushing stocks nicely higher as the year’s midpoint approaches. At the closing bell, the Dow Jones Industrial Average was up 144 points; the NASDAQ rose 88 points, making it the leading percentage gainer among the major average; and the S&P 500 gained 21 points. Market breadth affirmed the positivity, as advancing issues easily outpaced decliners.
The banking group was one of the sectors providing leadership today. With the Federal Reserve expected to release the results of stress tests this afternoon, the word on Wall Street was to look for a slew of dividend hikes and share repurchases in the near future. Bank stocks had a nice run following the Presidential election in November, but then experienced some consolidation. There is now a feeling that a green light from the Fed to disburse capital to shareholder could provide another leg up for the group. Gains in banking stocks, such as Bank of America (BAC), were widespread as a result.
Homebuilding stocks were another winner, as tight housing market conditions signaled a need to boost the inventory of homes for sale. The National Association of Realtors noted in a report that prospective homebuyers remain plentiful, but are being frustrated by the lack of homes for sale. Those are clearly the type of conditions that point to the need for home construction. The shares of homebuilders, including KB Home (KBH) and Hovnanian (HOV) benefited as a consequence.
Low interest rates continue to support the housing market. Mortgage buyer Freddie Mac last reported that the average rate for a 30-year mortgage was 3.90%. That is up from a year earlier, when rates averaged 3.56%, but down from the beginning of 2017. Rates spiked in November and December, but have since pulled back.
Elsewhere, it was even a good day for the oil market. Quotations for a barrel of oil rose about $0.50, to around $44.75. Oil prices have slipped about 10% in the past month as bearish sentiment has taken hold. A drawdown in gasoline inventories, as reported by the Energy Department, provided assurance that product is solid, though. Even so, today’s modest bounce in prices was hardly convincing, and there is broad thinking that rallies will be short-lived with oil seen as plentiful.
All in all, the latest session was a very good one for investors. – Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EDT
As we approach the noon hour on the East Coast and the midpoint of the trading week, the major U.S. equity indexes are trading sharply higher, with a partial bounce back in the technology sector from yesterday’s close helping the NASDAQ move higher. The Dow Jones Industrials and the broader S&P 500 Index are also nicely higher, with the index of 30 bellwether companies up triple digits right at the start of trading and extending the initial gain as trading has progressed. It has been a bit of a rollercoaster ride for investors this week, with a number of non-corporate headlines having an effect on trading. We are still a few weeks away from second-quarter earnings season commencing.
Yesterday, the profit taking was driven by some selling in the technology sector and concerns that President Trump’s healthcare effort to replace the Affordable Care Act is meeting significant resistance on Capitol Hill; the Senate decided not to take a vote on the bill ahead of its recess for the July 4th holiday weekend. The latter issue unnerved the investment community in the second half of the trading day yesterday. However, today has brought a change in the mood on Wall Street, with some encouraging data on the U.S. consumer yesterday (the latest Consumer Confidence Index reading was strong and better than expectations), commentary from Federal Reserve Chair Janet Yellen that U.S. banks are in strong financial position (the latest stress test results on banks is due after the close of trading today), and some rollback in the hawkish posture from European Central Bank (ECB) President Mario Draghi.
From a sector perspective, it is so far a clean sweep for the bulls, with all of the 10 major equity groups in positive territory. The leadership is coming from the basic materials and the financial sectors. The financial stocks, particularly the banking issues, are getting a boost from the aforementioned positive commentary from Ms. Yellen yesterday and the ECB’s slightly more hawkish stance. The commentary pushed bond yields higher, which is welcome news for the banks. As noted above, the stress test results are coming this afternoon, which should keep the financial sector in the investment community’s focus. We are also seeing some buying in the consumer (both cyclical and noncyclical) space and the industrial area. The consumer stocks are getting a lift from yesterday’s strong reading on consumer confidence. Conversely, the buying is not as strong in the higher-yielding equities groups, as the rise in bond yields makes fixed-income securities more attractive to income-oriented investors.
Meantime, we did get some disappointing news on the economy this morning. Specifically, pending home sales fell 0.8% sequentially in May and were more than 1% lower year over year. The real estate companies are blaming a historically low supply of houses on the market for the decline in pending home sales, which were down in each region. The biggest retreat came in the western United States. Likewise, mortgage applications were lower, another result of the short supply of homes on the market.
Looking ahead to the second half of today’s trading session, it appears that the bulls will be tough to beat today. One of the biggest obstacles for stocks in recent weeks, weaker oil prices, does not look like it will pose a problem this afternoon, as crude oil prices are higher both here and on the Continent. The weekly report on crude oil came in slightly better than expected. Specifically, the Energy Information Agency reported that U.S. crude oil refinery inputs averaged 16.9 million barrels per day during the week ending June 23, 2017, 262,000 barrels per day less than the previous week’s average. The investment community greeted the report positively, which seems to be helping stocks today. 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.
Before the Bell
Following an indecisive session to start the new trading week on Monday, with the Dow Jones Industrial Average edging nominally higher, while the tech-driven NASDAQ meandered a bit lower, the stock market commenced things yesterday with a moderate move to the downside on further worries about oil and some additional profit taking. However, a strong report on consumer confidence and a solid tick up in oil reversed matters soon thereafter, and as we ended the first hour of the day, stocks were generally higher and a little optimism had returned to the market.
However, even though consumer confidence strengthened in June, rising from 117.9 to 118.9 (a survey result of 116.0 had been the consensus forecast), with some houses even looking for a lower score, and oil perked up nicely, gaining almost two percent, the market could not sustain that early bounce, and subsequent weakness in some large technology names helped pull the market lower again as we reached the noon hour in New York. The weakness intensified thereafter into the early and mid-afternoon, so that by 2PM (EDT), the Dow lost some 60 points, while the NASDAQ, under mounting technology pressure, had dropped 80 points.
These declines, as noted, came even though consumer confidence and oil both gained, and Federal Reserve Chair Janet Yellen noted in a bullish statement that banks are "very much stronger'' according to recent stress tests administered to that sector. She also observed that that Fed had learned lessons from the financial crisis late last decade and that this knowledge would likely bring some stability to the banking system going forward. Ms. Yellen also intoned that another financial crisis similar to the 2008-2009 experience was unlikely "in our lifetime.''
Still, the lure of taking profits in the overbought tech sector was too much for the bulls to handle, and the market retained its strong downward bias. Of course, it wasn't just technology that faltered on this last Tuesday in the first half, but also other groups, with an additional push lower in the telecom arena of note. There, Dow component Verizon (VZ - Free Verizon Stock Report) tumbled almost two percent. That issue saw its yield move up over 5.0%. Other late-day losers included the health care and industrial groups and the utilities. Bucking the downtrend were the energy and financial sectors.
The move lower accelerated into the close, after word came out that the Senate would delay a vote on a health care replacement effort due to some opposition by Republicans. So, the NASDAQ pushed down by 100 points at the end of trading on a stepped up descent in technology. That pullback took in the other averages, as well, including the Dow, which settled in with a final loss of 99 points and the S&P 500 Index, which gave back 20 points. Losses also were suffered by the small and mid-cap indexes, while losing stocks held a formidable lead on gaining issues, with three core groups, technology, health care, and the utilities losing big.
So, after this weak close and the increasing policy uncertainty in Washington, we look out and see that stocks in Asia were lower overnight, while in Europe, the bourses are trading down, as well, at this early hour on concerns about oil. Stateside, the price of oil is off, after further gains yesterday; gold is up a little; and yields on U.S. Treasury issues are climbing. Meantime, our futures are mixed, after the notably weaker close yesterday afternoon. So, there may not be any material carryover this morning, in what remains an overbought and therefore somewhat vulnerable market. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
