After The Close
Following a trying start to the day, the major U.S. indexes soared higher on Thursday afternoon, before a late pullback in the Dow eased the best gains. A recovery within the financial and technology industries, as well as strength from telecommunications equities, were the primary drivers for the uptick during the second half of the session. Banking stocks benefitted from a rise in interest rates, while the tech sector was given an initial boost by Amazon (AMZN). The Seattle-based e-commerce titan surprised many with its purchase of an online pharmacy, which in turn stoked a wave of optimism in the industry. Accordingly, this development sent shares of CVS Health (CVS) and Dow component Walgreens Boots Alliance (WBA – Free Walgreens Boots Alliance Stock Report) lower. Underscoring the gradual improvement in trading sentiment, advancing shares carved out a modest 1.4-to-1.0 margin.
Of the major composites, it was the NASDAQ that registered the widest percentage advance today. This makes sense, given the steep decline experienced by the tech-laden grouping on Monday and Wednesday. Tariffs on tech products from China are now expected to be less prohibitive than initially feared, though the policy is subject to change up until its implementation. Elsewhere, the Dow and S&P 500 ascended into the final hour, with the former gaining on the heels of particular strength by JPMorgan Chase & Co. (JPM – Free JPMorgan Chase Stock Report), IBM (IBM – Free IBM Stock Report), and the blue chip’s best performer, Verizon Communications (VZ – Free Verizon Stock Report). As the closing bell neared, the groupings slipped from their afternoon highs, but still finished the day with respectable gains.
Meanwhile, the price of U.S. crude oil ticked up to $74.00 a barrel, as prospective sanctions on Iran contributed to expectations of higher demand for the domestic commodity. Yesterday, U.S. officials recommended all allied nations prohibit imports from the Middle Eastern nation starting in November. This, coupled with a surprising decline in stateside stockpiles, helped to drive the per-barrel value of American crude to its highest level in nearly four years.
We expect tomorrow to see more rotational trading as this generally negative week of trading wraps up. Concerns over trade relations between the United States and other nations likely will remain a check on any bullish tendencies, however, as traders await until the forthcoming corporate earnings season before pushing equity valuations much higher. 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
But that is the way it has been going for some time with regard to investors. Tough talk is followed by less-contentious leanings. This pattern leads to market selloffs then comebacks. And that is what has transpired this week thus far. Thus, as a crackdown on China's tech investments now seems less restrictive than earlier feared, stocks have rallied. Leading the way again were the large multi-national enterprises that dot the Dow's landscape, along with some high-profile technology names. Our sense is that the situation is in flux and further weaving in and out is likely in the days to come, which will keep volatility high.
The stock market then strengthened further after that initial pop, with the Dow pushing up past the 285-point advance marker on that shift toward a less-confrontational approach. Also of note, the Treasury Secretary opined that second-quarter GDP would be a big number, although he did not quantify that target. Our thinking is that growth could reach 4% for the period. Meanwhile, as the morning progressed, there was some brief rethinking of that earlier euphoria, as the Dow's gain moderated notably, with that index giving back more than 150 points of that mid-morning rise.
In other news, the government reported that orders for manufactured durable goods decreased by 0.6% in May according to the U.S. Census Bureau. This nominal setback followed a 1.0% drop in such orders in April. Excluding transportation, new orders eased by 0.3%. Of note, both the April drop, which was revised, and the May tally were better than forecast, thereby further attesting to the business upturn's impressive strength. Then, as the morning concluded, the market tried to stabilize, but with mixed success, as the Russell 2000 went negative, while the NASDAQ's advance was nearly erased, but the Dow had started to firm up anew.
However, the Dow's firming would not continue, and as we moved into the afternoon hours, the stock market turned negative, with the NASDAQ moving decisively lower along with the small-cap Russell 2000. The Dow and the S&P 500 retreated less aggressively. Still, it was a reversal of note by mid-afternoon. The afternoon pullback in stocks was in part attributable to another upward spike in oil prices. That volatile commodity, which ran up by more than 3% on Tuesday, surged a like amount yesterday, settling in at more than $72.50 a barrel in New York, the highest close since November 2014. There are inflationary implications to this spike.
What did not run up yesterday, in addition to equities, were bond yields, which fell in a flight to quality, with the 10-year Treasury note dipping back to a yield of 2.83%. The market's descent then deepened as we headed into the final hour, with the Dow falling by more than 150 points at the time. The market did then try to rally as the Dow briefly pared its loss to about 50 points. However, warnings from a major automaker in Japan that tariffs would cause car prices here to balloon sent in the sellers once again, forcing the market down to session lows at the close. End of quarter adjustments also factored into the late action, in our view.
In all, as the final bell sounded, the market had suffered a major setback, with the blue-chip composite off 166 points; the S&P 500 lower by 23 points; and the NASDAQ off 117 points, or about a percentage point and a half. The Russell 2000 suffered a similar percentage drop. Looking ahead to the penultimate trading day of the month, we see that stocks in Asia were generally lower overnight, while in Europe the bourses are trading with losses, as well. Also, oil, a big winner in back-to-back sessions, is now little changed in early action; Treasury yields are essentially flat, too; and our equity futures initially posted small gains have changed direction and are now pointing to losses, at this hour.
- Harvey S. Katz, CFA
