After The Close
The stock market started positively today, as a rebound from last week’s selloff continued. Additionally, the U.S. government extended the time that Chinese technology firm Huawei could buy supplies from U.S. companies for an additional 90 days. Investors viewed this as an easing of trade tensions between the two countries and, thus, bolstered the major market composites. The Dow Jones Industrial Average traded higher by about 330 points at its early apex, while the S&P 500 was up around 36 points. The markets then traded in a sideways pattern for much of the day. Still, a slight divergence occurred as the Dow traded just lower than its high, while the S&P 500 and NASDAQ both exceeded their early levels, though only by a modest amount. All told, the Dow closed higher by 250 points, the S&P 500 rose by 35 points, and the NASDAQ gained 107 points.
Meanwhile, market breadth was very positive, as advancers outpaced decliners by a 2.8-to-1.0 ratio. Energy stocks were among the best performers on the day, helped by an increase in the related commodities. On the other hand, utility stocks were among the weakest, though only on a relative basis.
In commodity news, oil prices were higher today, as a Yemeni Houthi drone attack set a Saudi Arabian oil field on fire over the weekend. Though this will not likely cause any significant supply issues with the current offense, it highlights the potential for supply disruptions in the Middle East. Elsewhere, U.S. Treasury bond yields were higher across the board, as investor sentiment improved. And, the VIX Volatility Index was lower today, as demand for options protection fell.
Looking ahead to tomorrow, the economic news is expected to be lighter than usual. However, the earnings season will continue with Dow-component Home Depot (HD – Free Home Depot Stock Report) slated to release quarterly results. Additionally, several other retailers are expected to report earnings, which should show how healthy U.S. consumption is and how brick-and-mortar retail is faring. Further out, we think that many eyes will be on Fed Chairman Powell’s speech at Jackson Hole later this week, and trading in the days ahead will likely hinge on any developments between the U.S. and China’s trade negotiations.
– 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
Volatility is the name of the game being played on Wall Street so far this August. Indeed, the CBOE Volatility Index, also known as the “fear gauge” and a measure of the anxiety in the stock market has spiked after a long extended stretch of tranquility that saw the major U.S. stock market averages establish all-time highs in July. The Dow Jones Industrial Average, the technology-driven NASDAQ Composite, and the broader S&P 500 Index topped the psychologically significant respective marks of 27,000, 8,000, and 3,000 last month, but that euphoria has given way to a very volatile stretch, marked by significant daily moves by the aforementioned indexes. For the most part, the pattern has been notable selling, then a partial retracement of the previous session’s losses before the selling picks up again. All told, the CBOE Volatility Index (or VIX), which was as low as 12.07 in July, has been as high as 24.10 this month, but has seen eased a bit.
During the most recent five-day stretch on Wall Street, the investment community was taken on another rollercoaster ride, with worries about international trade disputes, particularly between the United States and China, and the slowing global economies unnerving equities holders. The seesaw action on Wall Street last week was led by the biggest one-day selloff of 2019 on Wednesday, which included a more than 800-point setback for the Dow Jones Industrials. That selloff was driven by the inversion of the Treasury yield curve on Wednesday morning. Historically, such a movement in the fixed-income market has preceded a recession in the United States. That, along with the continued worries about the ongoing trade war, and the recent unrest in Hong Kong, dealt a big blow to the world’s equity markets, including the one stateside, during the middle stages of last week. The indexes, though, did regroup a bit over the final two days of last week, aided by some seemingly positive developments in the trade relationship between the economic superpowers, most notably comments from the Trump Administration that it will delay any further tariffs on Chinese goods until December 15th in hopes of revitalizing the recent stagnant trade negotiations. A strong quarterly report by retailing giant and Dow-30 component Walmart, Inc. (WMT – Free Walmart Stock Report), which included a jump in comparable-store sales, also helped sentiment on Wall Street late in the week.
Now, with the second-quarter earnings season, save for some reports from the retailing sector, nearing a close, the investment community will likely turn its full attention to trade, the Federal Reserve, and the economy. In addition to the fluid trade news, which included comments from President Trump this morning that U.S. companies should not do business with China-based Huawei Technologies, the investment community will be awaiting commentary later this week from Federal Reserve Chairman Jerome Powell. The central bank leader is scheduled to make a planned address at the Fed’s annual Jackson, Wyoming get together on Friday. Investors will be looking for clues about whether the FOMC committee plans to cut interest rates again at the September meeting.
Meantime, with less than an hour to go before the start of the new trading week stateside, the major U.S. equity indexes are indicating a nicely higher opening for the U.S. stock market and the continuation of the buying that closed the trading week on Friday. Helping trading, which included a higher finish overnight in Asia and some buying so far this morning in Europe, was news out of Beijing that China plans to reform its interest-rate system and lower borrowing cuts, in an effort to boost the country’s slowing economic growth. Also, international Treasury yields, which spooked the world’s equity market last week with the negative rates in Europe and the inversion of the U.S. yield curve, are rising this morning from last week’s multiyear lows. Oil prices, which fell last week and are being viewed as a sign that the global economy may be nearing a recession phase, are also modestly higher both here and on the Continent.
Will the good tidings from late last week and this morning have any sustaining power? That will depend greatly on the news from the trade front and the commentary later this week from Fed Chairman Powell. Before we get to the Federal Reserve news on Friday, the investment community will get some important reports on the U.S. economy, including data on new and existing home sales. The report on housing starts last Friday was disappointing, so the investment community will be eager to see the recent sales data, given the importance of the homebuilding and housing markets to the overall performance of the U.S. economy. Also this week, we will get the minutes from the Federal Reserve’s July meeting at 2:00 P.M. EDT on Wednesday. That release also will be scrutinized for more clues about whether the central bank will continue to loosen the monetary reins and if so, how aggressively. Stay tuned for what will be a busy—and probably another seesaw—week of trading on Wall Street.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
