After The Close
The markets started out negatively today, as a few worrisome earnings reports from companies were released both yesterday and before the bell this morning. These chilled the market some, including a lackluster release from Dow-component Pfizer (PFE – Free Pfizer Stock Report). Meanwhile, Dow-30 components Merck (MRK – Free Merck Stock Report) and Proctor & Gamble (PG – Free P&G Stock Report) offered more positive news. Additionally, concerns increased about U.S. trade negotiations with China, due to fears regarding the timing and even likelihood of an eventual deal. The Dow Jones Industrial Average fell by as many 151 points in early action, while the S&P 500 was down by 20 points, nearly falling below the 3000 level. However, sentiment improved, as consumer confidence numbers came in much higher than expected and at the best level since November. The Dow started trending upward, and the other indices followed suit. This move occurred throughout much of the session and the Dow even traded in the green for a spell. However, the markets could not hold this strength in the final portion of trading. All told, the Dow closed down 23 points, the S&P 500 finished lower by eight points, and the NASDAQ fell 37 points.
Additionally, market breadth was rather directionless, favoring neither advancers nor decliners by a large amount. Energy related issues were among the best performers on the day, while utilities stocks were among the weakest.
In commodity news, oil prices were higher today, as increased supply drawdown expectations occurred. Meantime, U.S. Treasury bond yields were mixed, as short-term rates fell a bit, while long-term rates increased. Still, these moves were not large, suggesting that traders are waiting for the Fed tomorrow before changing their positions. Meantime, the VIX Volatility Index rose a bit as demand for options protection rose.
Looking ahead, all eyes will be on the Fed tomorrow, as it will determine interest-rate policy tomorrow. A majority of traders are expecting a 25-basis point reduction in interest rates, but a small portion of the market is still forecasting a cut of 50-basis points. We believe that a 25-basis point reduction is the likeliest outcome. Too, market participants will be looking to see if any information can be gleaned concerning future meetings, as they are predicting more cuts ahead. Additionally, other economic news will be released tomorrow including the Energy Information Administration’s weekly report on crude oil inventories.
Meanwhile, earnings season continues, with several large companies slated to release quarterly results tomorrow. Too, investors will likely be keeping an eye on Apple’s (AAPL – Free Apple Stock Report) earnings report due after the bell today, given its size and weighting in the composites.
– John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell
Wall Street began a very busy week for the equity market on a rather mixed note, with the Dow Jones Industrial Average generally trending a little higher, while the S&P 500 and especially the tech-driven NASDAQ moving to the downside, with earnings taking a central role in the day's action. But earnings were not all that investors were preoccupied with on this critical week for the nation's economy and stock market. Let's look at a few of the things on the minds of investors as July concludes.
To begin with, there is the Federal Reserve, which will very shortly begin its two-day FOMC meeting, in which the bank is almost certain to vote to lower interest rates for the first time since 2008. Consensus expectations are that the Fed will cut the federal rates by 25 basis points. There are a few, including the President, who are championing a more aggressive posture. The rationale for a Fed easing is that the economy is slowing down, having grown at just 2.1% in the second quarter, and that inflation is staying stubbornly below 2%.
Then, there is trade and the talks now under way between the principal combatants in the lingering trade war, the United States and China. Most now believe that little drama will come out of these meetings at first, and that this is a long and winding process. Also of note, there is the continuing flow of earnings data for the second quarter. To date, about 75% of the companies already reporting are posting positive earnings surprises. That certainly is a solid percentage, but it is a little below most prior quarters over the past several years.
Finally, there is the U.S. economy, with the key issuance for the week being this Friday's report on July non-farm payrolls. The level of the projected increase will be a factor in influencing the upcoming Fed meetings, no doubt. But for now, a 25-basis-point reduction remains the most likely outcome. As for the market, it continued to drift sideways into the close, with continuing bifurcated action between the Dow and the other stock indexes as nervous investors awaited the Fed, earnings, and economic news.
In all, at the close, the blue-chip index would finish the skittish session holding a 29-point loss, while the S&P 500 would slip five points and the NASDAQ would shed 37 points. Helping the Dow would be a solid gain in shares of Walt Disney (DIS – Free Walt Disney Stock Report) on strong 2019 box office gains. Hurting the day's action on the NASDAQ were losses in Amazon (AMZN) and Facebook (FB). Also losing ground yesterday was the small-cap Russell 2000, which was solidly in the red throughout the session.
Looking ahead to the upcoming session, we see that stocks were higher in Asia overnight ahead of the U.S.-China trade talks, while in Europe, the major bourses are falling at this hour on profit concerns. In other news, oil prices are gaining and Treasury note yields, off slightly yesterday, are now a bit lower again in early action this morning. Finally, as the Fed gets ready to commence its two-day gathering, the equity futures are pointing to a weaker opening when trading resumes a little later on today. Note that the Fed results will be out tomorrow afternoon.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
