After The Close
The stock market started off strongly today, as a rebound occurred after yesterday’s severe FOMC-related selloff. Indeed, the composites started to rise after the release of lackluster economic news along with some decent earnings reports. Indeed, the initial jobless claims came in slightly higher than in the previous report, while the ISM Manufacturing Index was below consensus. These caused expectations of another interest-rate cut in future Fed meetings to rise. Meantime, a few earnings reports from some corporations, including a few materials companies, were decent, helping sentiment improve. The Dow Jones Industrial average was higher by as many 311 points in early action, while the S&P 500 was up by around 33 points. Then in early afternoon, President Trump announced that on September 1st, the U.S. will enact 10% tariffs on all goods from China, such as many consumer-facing products, which are not currently being taxed. This caused the markets to sink quickly and the day’s gains to be erased. The move continued, and the markets moved far into the red. The Dow was lower over 316 points at its nadir. The other indices followed this move lower, and the markets closed near their lows. All told, the Dow closed lower by 281 points, the S&P 500 was down by 27 points, and the NASDAQ dropped 27 points.
Additionally, market breadth was rather negative, as decliners outpaced advancers by a 1.7-to-1.0 ratio. Utilities stocks were among the best performers on the day, helped by a decline in interest rates. Meantime, energy equities were among the weakest performers, hurt by a slide in the related commodities.
In commodity news, oil prices fell today, as worries increased about long-term demand. This marked the largest one-day decline in four years. Meantime, U.S. Treasury bond yields fell across the board, as a flight to safe-haven assets occurred, and the medium-term rates fell a bit more than long-term rates. Meantime, the VIX Volatility Index rose today in a swift move, though it spent much of the day in the red.
Looking ahead, tomorrow will be a busy day for economic news. This includes the unemployment rate for July and nonfarm payrolls, which will give greater clarity into the employment picture. Too, the University of Michigan’s consumer sentiment index for July is scheduled for release.
Meantime, several large companies, including oil-producers Chevron (CVX – Free Chevron Stock Report) and Exxon Mobil (XOM – Free Exxon Stock Report) are slated to report quarterly results.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The stock market, which had done little during the first two trading sessions of this week, began yesterday's action to the upside, but grudgingly so, with the Dow Jones Industrial Average and the NASDAQ gaining, while the S&P 400 and S&P 500 both faltered. The big underlying story of the day, if not the week, was speculation on what the Federal Reserve would do and say after it had concluded its two-day FOMC meeting. Expectations have been near unanimous that the lead bank would lower the federal funds rate by 25 basis points, which, in fact, the FOMC would vote to do after the meeting's conclusion.
In other news, shares of tech icon Apple Inc. (AAPL – Free Apple Stock Report) surged in early trading yesterday after the industrial giant reported earnings per share for the latest quarter that topped analyst expectations. In all, the issue rose some 4% in early dealings--but would fade late in the day--while 76% of the companies reporting to date have surpassed consensus profit forecasts for the latest quarter. The earnings flow has been heavy, and for the most part reassuring, although there have been some notable outliers, many of which have been dealt with sharply in recent days.
Regarding the Fed, traders had been pricing in a 25-basis point reduction in rates and that is just what they received. The rate cut, meantime, was the first by the central bank since late 2008, when we were in the depths of the last recession. The interest-rate adjustment comes amid mixed economic metrics, as consumer spending continues to percolate, while business investment still is lagging. The Fed move also took place two days before the government reports on employment and unemployment for July. A rise of 166,000 new jobs and a one-tenth of a point drop, to 3.6% in the jobless rate are anticipated.
Meanwhile, after that brief morning spurt in the Dow and the NASDAQ, due in large part to shares of Apple, which is a component of both indexes, the market drifted about in positive and then negative territory and finally back grudgingly into the green as the morning drew to a close. Overall, the arrival of noon in New York saw small gains in place for all three of the large-cap composites, with a solid gain also in place on the small-cap Russell 2000. The steady drumbeat would stay in place as the afternoon began and the Fed prepared its remarks following the get together.
Then, the Fed acted, and as noted, lowered its target for the federal funds rate by one-quarter of a percentage point. And the stock market initially yawned. However, when the accompanying statement did not sound overly bullish about future rate cuts, the market tumbled, dragging the Dow down to a session-worst loss of some 480 points, before the selling abated and stocks quickly recouped much of those losses. But this comeback, which took the Dow from a loss of 480 points to a deficit of fewer than 200 points, could not be fully sustained and stocks retreated as the afternoon concluded.
In all, the blue chip composite would settle in with a 334-points loss, while deficits of 33 points and 98 points would be booked by the S&P 500 Index and the NASDAQ. The S&P 400 and the Russell 2000 Index also would fade and losing stocks held a wide margin on winning issues. It was a late-July meltdown. Now, we will see if this setback has staying power. To get an early look at things, we note that stocks were lower in Asia overnight and are up a little in Europe so far this morning. Treasury note yields, meantime, are edging higher, as well, and U.S. equity futures are pointing to a better opening when equity trading resumes.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
