It was a strong day on Wall Street yesterday, as traders bid up the stocks, with recession fears easing a bit and corporate earnings and outlooks coming in above expectations. Mixed residential construction results, which showed annualized June building permits of 1.69 million—coming in above lowered expectations—helped market sentiment, too.
As noted, some recent earnings reports were quite strong, and outlooks have been better than expected, causing traders to jump back into the market. Still, a few notable Dow components recorded weaker performances, including Johnson & Johnson (JNJ), whose stock declined after the company trimmed its full-year guidance. IBM (IBM) also fell after weaker guidance, with foreign results eroded by a stronger dollar. Overall, the stock indices traded higher throughout the day and ended near their highs. The S&P 500 Index finished 106 points higher; the NASDAQ rose 353 points; and the Dow Jones Industrial Average increased 754 points. Moreover, market breadth was very strong yesterday, as advancers outpaced decliners by a five-to-one ratio, one of the most productive days since February. All 11 sectors of the economy were positive yesterday. Industrial stocks were among the best performers, while utility equities were among the weakest, though only on a relative basis.
In commodity news, oil prices continued to rise yesterday, as traders believe demand will outpace supply. Elsewhere, U.S. Treasury bond yields did not move that much. Still, long-term yields are lower than short-term durations, showing an inverted yield curve. This is usually a predictor of a recession. The Fed will decide its interest rate policy next week, and traders are currently pricing in a three-quarter-point hike. The VIX Volatility Index, which measures the magnitude of price movements in the S&P 500, was lower yesterday, as demand for options protection fell slightly.
The futures market initially continued yesterday’s trend higher, as several companies reported good earnings and outlooks after yesterday’s close. However, this positive sentiment turned negative through the night, causing the market to trade into the red by morning. The futures are now indicating a weaker start to the trading day stateside.
Looking ahead, several economic reports will be released in the days ahead, including initial jobless claims, the Philadelphia Fed manufacturing index, and leading economic indicators on Thursday. The remainder of the week also will bring a number of earnings reports. The early portion of the second-quarter earnings season has produced results from several financial companies and airlines, which should show the state of the consumer and also demand for travel. Dow-30 components Dow Inc. (DOW) and Travelers (TRV) are on the docket tomorrow, while American Express (AXP) and Verizon (VZ) are slated for Friday. These will likely drive Dow Jones Industrial trading in the coming days.
− John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
