After The Close
The major U.S. equity indexes began the last session of the week in negative territory, and largely failed to make significant headway as the day wore on.
On the economic front, the Labor Department reported that nonfarm payrolls swelled by 164,000 in July, while the unemployment rate remained close to its 50-year low at 3.7%. Meanwhile, the Commerce Department reported that factory orders were up 0.6% in June, following declines in the prior two months. However, traders found little solace in these positive numbers, as the markets remained unsettled after President Donald Trump indicated that additional tariffs would be imposed on China’s goods beginning on September 1st. The announcement heightened fears of a global economic slowdown, as business investment would slow further in light of increased uncertainty, and higher prices would hurt U.S. consumers.
At the closing bell, the 30-stock Dow Jones Industrial Average was down 98 points (0.4%) while the broader S&P 500 took an even bigger hit, falling by 21 points (0.7%). The NASDAQ, meanwhile, fared the worst of the lot, shedding 107 points on the session, or 1.3%. Nearly all of the 10 major market sectors ended the day in the red, with the largest losses sustained by technology (down 1.7%), basic materials (-1.5%), and energy shares (-1.1%). Utilities were the only stocks to escape unscathed, ending the session at breakeven.
Elsewhere, light sweet crude prices recovered 2.5%, to around $55.30 a barrel. However, after plummeting by nearly 8% on Thursday, the commodity was down about 1.6% for the week, and is 20% lower versus a year ago. Lastly, sentiment was even more negative on the European bourses today. France’s CAC-40 was hit the hardest, with a loss of 3.6%, while Germany’s DAX was down 3.1%, and the UK’s FTSE 100 declined 2.3%.
– Mario Ferro
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 opened to the upside yesterday morning, one day after suffering a major selloff. That market drop, which came to 334 points in the Dow Jones Industrial Average, was occasioned by disappointment that the Federal Reserve, which cut interest rates on Wednesday for the first time since late 2008, did not signal that more reductions would soon follow. The Fed Chair, Jerome Powell, in fact, said that while the central bank was not ruling out more reductions, it was also not endorsing the idea that this rate cut was the start of a long series of such moves.
His uncertainty about future rate moves, which drew criticism from investors, as well as from the White House, did not prove to be a major watershed for the equity market, however, as stocks turned around nicely yesterday morning, with the aforementioned Dow Industrials, after some minor hesitation, rallying strongly as the morning progressed. On point, within an hour, the blue chips would be up by more than 200 points, rising strongly, apparently, on hopes that the Fed would, indeed, cut interest rates again in the coming months. The late-morning advance would then approach 300 points, before topping out.
Contributing to the evolving expectations that interest rates would be lowered again by the Federal Reserve in the coming months was the release, at 10:00 AM (EDT), of data showing that the Institute for Supply Management's manufacturing index had fallen to its lowest level since September 2009. Employment growth also stumbled somewhat, hitting a six-year low. Also weakening in July were production levels, prices, backlogs, and exports. The aggregate survey result of 51.2 for last month, which was off slightly from June's 51.7 reading and expectations of 51.9, was barely in expansion territory (i.e., above 50.0).
Armed with that dour number and awaiting this morning just-released data on non-farm payrolls and the unemployment rate (see below), the bulls held securely onto the reins into the early afternoon, with the Dow and the NASDAQ up by better than 200 points and 100 points, respectively during much of this time. Then, as traders returned from lunch, the President said that the United States would be adding more tariffs on China. That bombshell caused an immediate stampede to the exits by the bulls and within the next two hours, the Dow would plunge to a loss just north of 300 points--a more than 600-point peak-to-trough plunge.
Shares of Caterpillar (CAT – Free Caterpillar Stock Report) and Deere (DE) two heavyweights in the global trade arena took a major hit as did some retail stocks, such as Dow component NIKE (NKE – Free NIKE Stock Report). The market would proceed to then stay near their lows into the close, finally ending with the Dow off 281 points. The NASDAQ, which had been up by well into triple digits would end off by 64 points, with both oil prices and Treasury note yields retreating notably. Now, we shall see where the latest trade flare-up will go and what the effect of the key employment report will be on sentiment and market action.
As to that report, issued at 8:30 (EDT) this morning, it showed that non-farm payrolls rose by 164,000 in July, which was right in line with expectations of 166,000 new hires. Solid job gains were tallied in professional and technical services. Meanwhile, the unemployment rate held steady at 3.7%; a dip to 3.6% had been the forecast. Also, the labor-force participation rate edged up to 63.0%. Also, average hourly earnings rose by $0.08, to $27.98 in July. That followed an eight-cent gain in June. Moreover, job tallies for May and June were revised downward by 10,000 and 31,000, respectively.
All in all, this was a ho-hum report and follows a weaker-than-expected issuance on manufacturing activity released yesterday. Wall Street, meantime, was apparently not all that happy with this report, as the equity futures, off before the release, dipped a little further. Worries about the new tariffs and the lingering trade war with China, and uncertainty over the Federal Reserve's next move were seemingly behind the likely softer opening for the stock market this morning.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
