After the Close
Equities started out the new trading week with a somewhat lackluster performance. At the close of the day, the Dow Jones Industrial Average was down 22 points; the broader S&P 500 Index was off three points; and the NASDAQ was lower by 10 points. Market breadth suggested some underlying weakness to today’s session, as decliners outpaced advancers on the NYSE. The major equity sectors were divided, with notable weakness in the healthcare and basic materials issues. However, some strength was seen in the energy group, even though the price of crude oil slipped to roughly $47-a-barrel in New York.
Meanwhile, traders received just a few economic reports this morning. Of note, factory orders dipped 0.2% in the month of April, which more or less met expectations. In addition, the ISM Non-Manufacturing Index delivered a reading of 56.9 for the month of May, which was slightly lower than had been anticipated. Tomorrow will be a quiet day for economic news, with no major reports set to be released. Today the lack of news may have contributed to the market’s quiet tone, and that may be the case tomorrow, as well.
Finally, few leading companies posted financial results over the past 24 hours. However, shares of Herbalife (HLF) moved lower, after that company revised its guidance, suggesting a softer-than-anticipated sales outlook. In the M&A area, shares of DR Horton (DHI) were off slightly, after the homebuilder offered to buy Forestar Group (FOR). The news sent that stock nicely higher.
Technically, equities remain near high ground. Given the advances logged lately, today’s pause does not come as surprise. However, it remains to be seen how the market will perform in the weeks ahead. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:50 AM EDT
The major U.S. equity indexes started the week in mixed fashion this morning—and that continues to be the case as we approach the midday hour on the East Coast—but there is an underlying bearish tone to trading. Our sense is that on a day that is rather quiet on both the earnings and economic data, investors are taking a breather. We are, though, seeing mild selective profit taking, with the U.S. equity indexes standing at or near all-time highs. The NASDAQ, which has been modestly higher for much of the morning, has set a number of record highs in the last fortnight.
There are more losing than winning issues on both the Big Board and the NASDAQ, and the declines are more notable than advances among the 10 major equity groups so far today. The biggest laggards are the healthcare (most likely some profit taking after the move higher on Friday), consumer (both cyclical and noncyclical), and basic material stocks. The pullback in the consumer sector may be the product of today’s report on nonmanufacturing activity, which showed that growth in the services sector slowed a bit in May (see below). Conversely, the white-hot technology issues, which have been the main catalyst behind the NASDAQ’s recent surge to an all-time high, are again the darlings of Wall Street today.
As noted above, there is little news on the earnings beat today, and that is probably the main reason why we are seeing no meaningful moves by the major averages in either direction. This may be the case for the remainder of the week, as we are in quiet period for earnings, and save for a report on the services sector this morning, there is no other influential economic releases the remainder of this week.
And the one notable report on the economy this morning is not having that much of an impact on trading today. The Institute for Supply Management, a Temple, Arizona-based trade group, reported that nonmanufacturing sector expanded for the 89th consecutive month in May, but the pace of growth was not as formidable as the prior month. Specifically, the nonmanufacturing index registered 56.9%, which was 0.6 percentage point lower than the April reading. A closer look also showed that business activity/production, new orders, and net export orders grew at a much slower pace last month. Overall, it was a decent report on the services sector, but did include some possible warning signs too.
Looking ahead to the remainder of today’s session, we don’t see any near-term catalysts to drive the market forcefully in either direction, and, thus, we would not be surprised if the blasé performance this morning continue through to today’s closing bell. 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
The U.S. equity market ended last week very much like it has for many weeks this year, which was with the major equity averages at or near all-time highs. Not even some semi-disappointing data on the economy for much of the week (more below) could slow the bulls, who continue to prosper from environment where there are very few attractive alternatives to stocks.
On Friday, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index added 62, 59, and nine points, respectively, to their already lofty totals. The buying was broadbased, as the small- and mid-cap sectors also produced gains during the bullish day on Wall Street. There was a plurality of winning issues on both the New York Stock Exchange and the NASDAQ, and nearly all of the 10 major equity groups, save for the energy sector, finished the day in positive territory. Despite some uninspiring data on the economy, the leadership came from the economically sensitive sectors, most notably the technology and consumer discretionary groups. There also was a great deal of interest in the healthcare stocks.
As noted, last week was not a great stretch for economic news. Of note consumer confidence retreated a bit, manufacturing activity slowed nominally, the trade gap widened, and jobs creation was very soft in May. The latter data were not good, as nonfarm payrolls totaled just 138,000 last month, which was far below the expectation. On the bright side, the unemployment rate fell to 4.3%, which was the lowest level in 16 years. The weak job creation figures put downward pressure on the dollar, which fell against a basket of foreign currencies. The weaker greenback helped the basic materials stocks on Friday.
Ironically, the weak labor report probably helped stocks a bit on Friday because it raised questions about whether the Federal Reserve will be able to raise rates as many times as it would like this year. A more accommodative central bank is generally well received by Wall Street—and that may have been the case once again on the final day of trading last week. That said, the continued expectation is that the Fed will raise short-term interest rates later this month.
The reaction to Friday’s jobs report, though was more notable in the bond market, where the yield on the 10-year Treasury note fell sharply. It ended last week at 2.16%, down nine basis points for the four-day stretch. The implication is that bond investors envision less economic expansion than before. That is a potential warning sign for the stock market, where valuations remain quite high. Another thing that bears watching are the falling oil prices, which can be another sign that the economy is slowing some. The benchmark U.S. grade finished last week below $48 a barrel on Friday, to near $47.50. Crude oil inventories remain high, despite a larger-than-expected drop reported Thursday by the Energy Department. Investors appear to be concerned that increasingly productive domestic wells will outstrip ongoing reductions in pumping volume on the part of OPEC, Russia, and other countries. That prospect was underscored by recent reports of high levels of oil exports from the United States.
Looking ahead to the week at hand, it will be a very quiet week on both the earnings and economic fronts, with the only notable data on nonmanufacturing activity. The light schedule may push the investment community’s attention toward Washington D.C., which may not be a good thing for stocks given the escalating tensions between political parties on Capitol Hill. The partisan environment has not been conducive to get things done to boost the U.S. economy, which grew by a pedestrian 1.2% in the March quarter.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are indicating a lower opening for the U.S. stock market. So far today, trading overseas has been modestly bearish, though a number of the European bourses, including Germany’s DAX, are closed for a public holiday, reducing overall activity. 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.
