After The Close
Ramped up trade-related fears and the most recent statement on monetary policy by the Federal Reserve sent the major market averages mostly lower on Wednesday. Despite the strong start to the session, which seemed to presage a continued rebound by each of the large-cap composites, economic and geopolitical concerns offset a mostly positive output from Corporate America’s ongoing quarterly earnings season. Though losses temporarily narrowed somewhat in the final hour or so, the number of declining issues nearly doubled advancing shares.
The NASDAQ was the strongest performing index today, and the lone gainer, as it continues to bounce back slowly from a challenging past few weeks. The most recent bit of encouragement came from Apple(AAPL – Free Apple Stock Report), which has benefited from better-than-expected sales of its higher-priced line of iPhones. Time will tell whether the past two days of recovery are a sign of an industry-wide rebound of the tech sector or just a symptom of investors taking advantage of reduced stock prices, however. After the market closes, recently embattled electric car pioneer Tesla (TSLA) will report its second-quarter performance data.
Turning to the business beat, the expectation of a tighter monetary environment were amplified after the Federal Reserve upgraded its view of the U.S. economy to strong. A rate hike in September is all but certain, it seems, with an additional raise also likely in December. In additional to the potential hike in borrowing costs, investors were weary over more uncertainty on the global trade front. News that President Trump was mulling a 25% tariff on $200 billion in Chinese imported goods emboldened a broad selloff, especially hurting the basic material and industrial sectors. But the negative impact was partially offset by another report that the U.S. and China are working behind the scenes to come to a mutually amenable agreement. If anything, these conflicting items underscore the day-to-day nature of trade developments.
Meanwhile, U.S. crude slipped over $1.00 per barrel amid fears of an inventory glut at home and overproduction from foreign producers. A report from the U.S. Energy Information Administration revealed that stockpiles rose by nearly 4 million barrels (versus the expected decline of about 3 million), while demand for gasoline is also ramping higher. Overseas, it appears that the lower-than-expected June output increase from OPEC (plus Russia) is not an indicator for a less active drilling backdrop in the Middle East. In fact, a recent survey stated that the cartel’s production levels hit a year-to-date high in July.
Looking ahead, we suspect the aforementioned developments will continue playing a role in trading. A busy earnings season ought to remain another dominant storyline for the foreseeable future. But Friday’s nonfarm payrolls report from the U.S. Department of Labor will be the most closely watched data release. A strong showing would ostensibly assure the Fed’s interest-rate increase in September. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
A mostly solid July for the stock market ended yesterday and did so with decent gains. On point, after a sharp setback to begin the new trading week on Monday, a report that the United States and China were said to be ready to restart talks to avoid a trade war lifted spirits nicely. Thus, the Dow Jones Industrial Average, a 144-point casualty the day before, quickly rose to a gain of some 135 points. Somewhat more modest increases were tabulated by the other large- and small-cap indexes, as the Street sought to undue the declines of the day before.
According to reports, the world's two largest economies are trying to avoid a full-blown trade dispute. To be sure, no accord has been reached on that front, and there are just agreements to restart the talks. Also helping to drive stocks higher was a rebound in the technology group, which, based on the NASDAQ, had fallen by nearly 4% over the prior three sessions. Unfortunately for the bulls, that early strength in the tech sector could not be sustained, and as the morning moved along, the NASDAQ would dip back into the red for a time. The Dow and the S&P 500, however, would remain in the green all along.
Looking at the market in some depth, nearly 60% of the companies in the S&P 500 have already released their quarterly metrics, with almost 80% of that group inking better-than-expected results. That is a stronger ratio than in the first quarter. Also on the docket yesterday was the start of the latest Federal Reserve meeting. The results of that confab will be out later today. Expectations are that the bank will opt to keep interest rates where they are until its September meeting. A rate hike is likely at that time. The market will be closely watching later today for comments by the Fed about trade and other matters.
Meanwhile, on the economic front, the Conference Board reported that its survey on consumer confidence had increased marginally in July, following a modest decline in June. In all, that group's index now stands at 127.4, up from 127.1 the month before. The report noted that confidence remained strong, suggesting that the economy would stay in a nice uptrend for some months yet. The outlook for the labor market though was just mixed. Also, there was a bit less optimism on the outlook for the economy looking out some months. Overall, though, this was another solid report on the business outlook.
The advance strengthened after lunch, so that as we moved inside the final two hours of trading, the Dow and the NASDAQ would realize respective gains of 165 and 50 points. Optimism about possible trade talks with China was the main focus of the bulls. The rally would then largely continue into the latter stages of the afternoon, with the Dow continuing to show a triple-digit advance, as most groups saw their components push higher. One stock that edged upward was Procter & Gamble (PG – Free Procter & Gamble Stock Report), as that Dow issue had better-than-expected earnings, even as revenues lagged somewhat.
The market would then settle in with a closing gain in the Dow Industrials of 108 points, while the S&P 500 Index gained 14 points, and the NASDAQ added 42 points. Strong increases also were tabulated by the S&P 400 and the Russell 2000. All the while, yields on the 10-year Treasury note eased to 2.96%. Breaking the day down, we see that eight of the ten leading equity groups finished the day higher, with the largest gainers being the industrials (on that trade optimism), basic materials, and health care. At the same time, winning stocks led losing equities by just over a two-to-one ratio on the Big Board. All in all, it was a constructive session.
Now, a new day and new month begin, with the indexes in Asia showing modest losses in overnight trading. In Europe, meanwhile, the key bourses are posting early declines, as well. Elsewhere, oil, a gainer yesterday, is down so far, and yields on the 10-year Treasury note, which ended yesterday at 2.96%, are now at 2.98% ahead of the Fed's rate decision. Finally, on a strong report from technology behemoth Apple Inc. (AAPL –Free Apple Stock Report), the equity futures are suggesting a mixed opening, with strength in the NASDAQ offsetting a choppy performance elsewhere.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
