After The Close
The stock market traded in a narrow sideways range this morning, plunged dramatically in the early afternoon, but managed to partially recover later in the day. Of note, the FOMC concluded its two-day meeting at 2PM (EDT) this afternoon. The central bank chose to cut its benchmark interest rate by 0.25%, to support the domestic economy in a more difficult global climate. However, some traders were likely disappointed that the rate cut was not larger (perhaps 0.50%). Further, Wall Street may have hoped that Chairman Jerome Powell would adopt a more accommodative stance. By the end of the session, the Dow Jones Industrial Average was down 334 points; the broader S&P 500 Index was off 33 points; and the NASDAQ was lower by 98 points. Market breadth was negative, with losers outpacing winners by a margin of roughly two to one on the NYSE. From a sector perspective, the technology and basic materials issues declined considerably, while the defensive utility stocks managed to display some relative strength.
In addition to the Federal Reserve’s rate decision, there were a few other economic reports released today. It is worth mentioning, that Automatic Data Processing’s (ADP) Employment Change report showed 156,000 private sector jobs were added to the economy in July. This figure was in line with expectations, and also nicely higher than the number posted in June. Tomorrow, we will get a look at the latest weekly initial jobless claims, and on Friday, the government will deliver its July employment numbers. Currently, analysts are looking for an increase of 166,000 jobs, with a 3.6% unemployment rate.
Elsewhere, in the corporate sector, shares of Apple, Inc. (AAPL – Free Apple Stock Report) rose nicely after the technology leader posted solid results. Of note, phone sales in China seem to be stabilizing, and demand for other products and services has picked up. Meanwhile, the second-quarter earnings season continues to progress. So far, the results have been in line with expectations, but many companies, particularly the smaller names, have yet to weigh in.
Technically, stocks have performed quite well lately. However, some traders may be wondering if a period of consolidation may soon be in order.
– Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The Federal Reserve began its latest FOMC meeting yesterday morning, and stocks fell at the outset following an unimposing and mostly lower session to start the new week on Monday. All points lead to an interest-rate cut of 25 basis points when the lead bank concludes its two-day confab this afternoon at 2:00 PM (EST). Few expect a 50-basis-point paring of borrowing costs, and almost no one believes the Fed will hold the line on rates. Meantime, if the Fed does reduce rates, it would be the first time since 2008 that it did so. But the Fed meeting, critical though it is, was not all investors had on their minds as trading began.
There also was news on pending home sales, which rose for the first time in more than a year. The nearly 3% increase arose on the strength of lower mortgage rates according to pundits. Also on the economy, the Conference Board saw consumer confidence, which fell in June, climbed in July, surging from 124.3 a month ago, to 135.7 now, noting a rising market. According to the Conference Board, "after a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year."
That good news helped to stop the early sharp decline in stocks, which had been just over 150 points in the 30-stock Dow Jones Industrial Average during the first few minutes of trading. In fact, as the first 90 minutes concluded, the Dow's loss had been pared to fewer than 50 points. As to influences on the market in addition to the Fed and the economy, traders also reacted to comments from the President in which he criticized China for not buying enough of our agricultural products and for also for changing the parameters for a trade deal and negotiations move along.
The market saw such criticisms as potentially jeopardizing hopes for a trade deal with China. In other news on this FOMC meeting day, two Dow companies, drug maker Merck (MRK – Free Merck Stock Report) and household products giant Procter & Gamble (PG – Free P&G Stock Report). Both companies reported favorable results sending their stocks higher during the morning hours. However, fellow drug behemoth, Pfizer (PFE – Free Pfizer Stock Report) fell sharply in price on analyst downgrades. All told, the equity market moved into the noon hour holding modest losses, albeit deficits that were materially smaller than earlier in the session.
Equities continued to press lower as the afternoon commenced, but as we moved into the final two hours a buying spurt evolved, with the Dow erasing its earlier losses and the NASDAQ going positive. The smaller-cap indexes, most notably the S&P Mid-Cap 400 and the Russell 2000, up just about all session long, strengthened further as the afternoon moved along. However, the major averages would dip into the red once again as the final hour began and concerns emerged ahead of this afternoon's rate decision and accompanying statement.
The mid-afternoon rally, meantime, faded late in the session and the major large-cap indexes all closed lower on the day, with the Dow off 23 points; the S&P 500 Index down by eight points; and the NASDAQ in the minus column by 20 points. On the other hand, the S&P Mid-Cap 400 held its nice gain, while the Russell 2000climbed a resounding 17 points. Treasury note yields edged upwards, meantime, as did the VIX volatility index. All in all, it was a mixed session with a slight bias to the upside as nervous investors waited on the Fed.
Looking out to a new day and one with the Fed, as noted, weighing in on things, we see that stocks were lower in trading in the overnight hours in Asia. In Europe, the bourses are tracking to the upside. Also, oil prices are rising after gains yesterday and Treasury note yields are edging lower. Finally, as investors look to the Fed, to tomorrow's report of manufacturing activity, and to this Friday's data on employment and unemployment, in which the consensus is that non-farm payroll rose by 166,000 in July and the jobless rate eased from 3.7% to 3.6%, the U.S. equity futures are pointing to a higher start to the trading day.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
