After the Close
After spending most of the day near the breakeven line, some of the major U.S. indexes returned toward their morning highs later in the afternoon. Investors are mostly focused on tomorrow’s testimony by former FBI Director James Comey to the Senate. Specifically, concerns that his statements would distract from the Trump Administration’s key tax, regulatory, and infrastructure policies even further. The prospects of these business-friendly overhauls are the main reasons for the market’s post-election ascent, and a prolonged delay of one or all of the strategies could be a major headache for Wall Street and Corporate America alike.
Still, despite the modestly optimistic tone amongst the large-cap indexes during the afternoon hours, market breadth favored the bears today. Declining issues outnumbered advancing equities by a 1.3-to-1 margin, with most market sectors showing aggregate losses on the day. The Trump-friendly basic material and industrial groups were two notable losers during the session, though financials were mostly in the black. Should Mr. Comey’s statements prove more damaging to President Trump’s ability to push through lynchpin reforms than anticipated, we expect the bears to be more aggressive during tomorrow’s trading.
Meanwhile, the energy industry had the worst day of the sectors following the U.S. Energy Information Administration’s revelation that domestic crude inventories grew by 3.3 million barrels last week. U.S. Crude lost roughly 5%, slipping below $46 for the first time since early May. The primary concern in the global market is that the glut of supplies has no near-term remedy. OPEC’s recent agreement to expand its six-month drilling limit for another nine months was deemed insufficient by investors, underscoring the significant progress needed to return oil prices to higher ground. Though the weekly report marks the first uptick in stockpiles in almost two months, energy stocks lost nearly 2% in market value today.
Looking out, tomorrow’s trading will largely focus on two developments: the Comey testimony and the European Central Bank’s decision on its monetary policy. The euro struggled today due to the growing expectation that the Governing Council’s Estonia summit will not result in a tightening of the policy or a change in strategy. Its decision will reverberate across global markets, but we believe most eyes on this side of the pond will be more focused with updates from the Capitol. –Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:10 PM EDT
With the economic and earnings news on the light side this week, the investment community is looking elsewhere for their trading cues and on those fronts the news has been far from uplifting. The landscape in Washington D.C. remains contentious and it could spike ahead of tomorrow’s testimony before Congress from former FBI Director James Comey. His commentary about President Trump and his dealings with Russia may make it even more difficult for the Administration to get their business-friendly agenda passed, which has the potential to be a big blow to Corporate America and Wall Street. And with the major equity averages starting the week at lofty valuations, we are seeing some selective profit taking on display with some skittishness among investors ahead of the Comey testimony; some rising geopolitical tensions overseas, particularly in the Middle East; and the European Central Bank’s monetary policy statement tomorrow morning. The ECB decision has the potential to reverberate through the world’s capital markets.
Thus, the major equity indexes are bouncing around the neutral line today, as investors seem hesitant to make any major moves ahead of tomorrow’s dealings in Washington D.C. And, as noted above, there is little news from either Corporate America or the business beat to drive the equity averages forcefully in either direction. As we pass the midday hour on the East Coast, the bulls and the bears have both been heard from today, with a few buyers reemerging within the last half hour.
From a fundamental perspective, there seems to be a slightly bullish undertone to trading, with advancing issues leading decliners by a healthy margin on the NASDAQ. The margin is rather split on the NYSE. Among the 10 major equity groups, the leadership is coming from the financial and technology stocks. Conversely, we are seeing some notable selling in the energy sector, as a sharp drop in energy prices on oversupply concerns is weighing on the oil stocks. Specifically, the weekly report from the U.S. Energy Information Administration showed that domestic crude supplies rose by 3.3 million barrels for the week ended June 2nd. The unexpected rise marked the first weekly increase in nearly two months.
Looking ahead to the remainder of today’s session, we would not be overly surprised if the current trading pattern, which is seeing the major averages bounce around the neutral line in a tight band, continued over the final four hours of trading. As noted above, we don’t expect investors to make any major moves ahead of the ECB decision and Mr. Comey’s testimony on Capitol Hill tomorrow morning. 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
Wall Street followed up Monday's modestly lower session with further early losses yesterday, as investors again turned cautious just ahead of former FBI Director James Comey's scheduled testimony before Congress. Also on the Street's mind are the heightened tensions in the Middle East, where several nations in that fractious region have broken off relations with U.S. ally Qatar. Then, there is the pending European Central Bank meeting and the general election set for the United Kingdom, where the ruling Conservative Party is ahead just narrowly in recent pre-election polls.
So, stocks slipped to start the day, with the Dow Jones Industrial Average, a 22-point loser on Monday, quickly falling back to a loss of some 65 points. But this resilient stock market did not stay down there for long, and the Dow's deficit was quickly pared to fewer than 20 points, before subsequently holding in that narrowly weaker range for the balance of the morning. The other indexes also held in modestly negative territory, although the tech-laden NASDAQ did stay close to the neutral line, with brief excursions in and out of the red.
As to the behavior of the market early on, traders were skittish ahead of both the Comey testimony and the UK elections, both of which are set for tomorrow. The fear on Wall Street is that Mr. Comey's testimony could further slow the already troubled prospects for the President's agenda in Congress, which is, itself, rife with partisanship. There also, as noted, is tomorrow's ECB meeting. All of this comes against a backdrop of limited economic news this week, though we did have a benign report on non-manufacturing activity issued on Monday. That sector continued its advance, but a touch more slowly than before.
The stock market then continued its range-bound activity as the morning's trading concluded. In addition to stocks, gold rose anew, hitting a seven-week high in price, while Treasury yields continued to decline, with the 10-year note easing back to 2.13% for a spell. In comparison, that yield had been 2.50% earlier this year. Meanwhile, most of the leading equity sectors were lower, with oil falling a bit further below $50 a barrel in New York postings on worries that a diplomatic rift between Qatar and several other states in the Middle East, including Saudi Arabia, could undermine efforts by OPEC to stabilize the oil market.
The stock market continued lower in the afternoon, held in check by the same problems affecting the earlier trading. However, after a news report came out in mid-afternoon that James Comey's testimony might come up short of suggesting the President sought to obstruct justice, the Dow and the S&P 500's losses were cut for a time, while the NASDAQ went positive, as did the Russell 2000. Equities then settled back somewhat as we entered the closing few minutes of the latest session, leaving the major indexes mostly in the red.
As the closing bell sounded, the slight mid-afternoon comeback had faltered and stocks closed clearly lower, but still off of their morning's nadir. It was the second range-bound performance in as many days so far this week. All told, the Dow, under pressure from a near 2% decline in the shares of giant retailer Wal-Mart Stores (WMT - Free Wal-Mart Stock Report). Losses also were sustained by apparel maker NIKE (NKE - Free Nike Stock Report). But the energy stocks partly countered these declines, leaving the Dow with a 45-point closing loss. Deficits also were inked by the S&P 500 Index, the NASDAQ, and the S&P Mid-Cap 400.
Looking at the current day's early action, we see that stocks were mixed in Asia overnight, while on the Continent, the bourses in Europe are tracking higher in early action so far today, and ahead of the ECB meeting and the UK elections. In other news, oil is off in early New York trading; the metals markets are; stronger and Treasury yields, which fell back yesterday are now edging higher in early action. As to the U.S. equity futures, the early action is tending toward the bullish side, but barely, after earlier back-to-back losses. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
