After The Close
While the early read on the futures indicated that yesterday’s selloff may continue, things turned around before the opening bell. News broke that China’s spokesperson at its foreign ministry “hopes the U.S. side will meet China halfway.” Traders took this to mean a potential softening of China’s trade stance and an increased likelihood of a deal. The market shot up quickly both in the premarket and early in the trading session. In fact, the Dow Jones Industrial Average was up by as many as 110 points in the morning. Still, the market could not hold these gains, so it fell and briefly traded in the red. In the early afternoon, the trend reversed again, and the composite made new highs. Overall, the day could be characterized by a series of higher highs and lowers lows. Too, it involved increasing price volatility both after yesterday’s large decline and ahead of tomorrow’s options expiration. All told, the Dow closed up 100 points, the S&P 500 rose by seven points, but the NASDAQ eased slightly, falling seven points.
Additionally, sentiment was quite mixed on the day, neither favoring advancers nor decliners by a large amount. REITs were among the best performers on the day, helped by lower interest rates. Meanwhile, energy issues were weaker.
In commodity news, oil prices were lower on the day, as demand expectations fell a bit, as traders thought an increased likelihood of a recession exists. Meantime, U.S. Treasury bond yields were lower across the board, but near-term interest rates fell more than those in the long term. The 30-year yield also fell to a record low and finished below 2%. Meantime, the VIX Volatility Index was lower as demand for options protection faltered.
Looking ahead, tomorrow will have some economic data reported. This includes housing starts and building permits in July. Too, the preliminary University Of Michigan Consumer Sentiment Index for August is slated for release. Meantime, earnings season will continue to taper off, but Deere & Co. (DE) will report quarterly results. This may be used as a barometer for international trade. Too, any developments concerning trade or interest-rate policy will likely affect the market tomorrow.
– 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
Down one day, up another, and down again once more seems to be the latest sequence of events on Wall Street. Thus, after the Dow Jones Industrial Average fell by 390 points on Monday, came back by 373 points on Tuesday, accelerating recession fears, brought on by an inverted yield curve, sent that composite lower by more than 650 points during the morning yesterday. To start the week, it had been the falling currency in China and a sense that the trade war with the United States would accelerate that did in the market; on Tuesday, we saw a relief rally as some tariffs were delayed; and yesterday the sellers massed again.
In this latest downturn, it was increasing fears that a so-called inverted yield curve, in which shorter-dated Treasury issues, in this case the two-year note, yield more than longer-dated notes, suggesting a rush to buy longer-term notes as a safe-haven asset. To be sure, this latest downdraft in the market also was a consequence of weak economic data out of China and Germany, with GDP in this latter instance shrinking in the second quarter. Also, there were fresh earnings concerns as giant retailer Macy's (M) provided a weak report for the latest fiscal quarter.
The downturn would accelerate as the afternoon began, and the blue-chip index would fall by over 750 points. A rally then would get under way that would see the Dow's deficit pared to fewer than 600 points, before stocks would falter anew. All the while the NASDAQ, a somewhat bigger casualty, which had been off by more than 250 points at the early afternoon's nadir, stayed down by over 200 points. It was not a pretty picture. Meantime, the small- and mid-cap indexes also were getting crushed, with the S&P Mid-Cap 400 and the Russell 2000 each off by more than 2.5% as we moved inside the final two trading hours.
Meanwhile, despite periodic rallies during the past few weeks, market sentiment has clearly weakened, and this is understandable as this stretch of elevated volatility has followed a six-month span of consistently rising equity prices on the lure of monetary easing by the Federal Reserve and earlier optimism that some trade accord would get brokered with China. Now the latter is in doubt, and stocks are falling. As to the aforementioned rate inversion, there have been a handful of cases when that has occurred in the past 40 years, and each time a recession has followed, although the timing of such downturns has varied sharply.
The market then stayed surprisingly low keyed the rest of the way with the key indexes moving little on balance, with the Dow, for example, staying range-bound for the last two hours of trading, finally close at session lows with a massive setback of 800 points. The S&P 500 Index, meantime, plunged 86 points and the NASDAQ tumbled by 242 points. Losses were realized across the board with many more stocks falling in price on the NYSE than rising. Financials, technology stocks and the basic materials entrants really took it on the chin on another light day for economic news.
So, after this hectic day and major triumph for the bears, we look out at a new day and take a gander at the market in Asia, where overnight trading showed that stocks were mixed. Meantime, in Europe, the bourses are tracking downward. In other markets oil prices are falling further on recession fears and Treasury note yields, which ended down at a multi-year low of 1.58%, are now passing hands at 1.56%. All of this points to a lower of start on Wall Street when trading resumes this morning. In sum, fasten your seatbelts as it may be another volatile day of trading.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
