After The Close
The bulls continued to dominate trading on Monday, accelerating a late-week rally that was spurred by economic optimism inspired by Federal Reserve Chair Jerome Powell’s statements on Friday afternoon. The S&P 500 and NASDAQ set all-time highs, with the latter driven by gains registered by Facebook (FB), Netflix (NFLX), and Google-parent Alphabet (GOOG). Apple (AAPL – Free Apple Stock Report) rose after announcing it was introducing three new iPhone models. Advancing shares nearly doubled declining issues by the closing bell. Technology, basic materials, and industrial stocks led the way, while only the utilities sector failed to register a full-day aggregate advance.
The primary reason for today’s surge was a newly announced trade agreement between the United States and Mexico. Expected to replace NAFTA, the pact has, at least for now, eased fears for the agriculture and manufacturing industries. This welcome dose of positivity into the geopolitical sphere, which has been a cause of great uncertainty in recent months, has benefitted the multinational operators the most. Accordingly, shares of Boeing (BA – Free Boeing Stock Report) and Caterpillar (CAT – Free Caterpillar Stock Report) were among the strongest-performing Dow components. Overall, gainers outnumbered decliners five-to-one in the blue chip index, which swelled by nearly 250 points on Monday.
Elsewhere, trade tensions between the United States and China likely capped what was a modestly positive day for U.S. crude oil. The per-barrel value increased, though less impressively than last week’s pace, as reassurances of a united front by OPEC and non-OPEC producers was somewhat offset by trade and a reported rise in Cushing, Oklahoma inventory levels. A measure of positivity remains in Iranian output levels, which are expected to decline considerably when U.S.-backed sanctions kick in.
Looking ahead, only time will tell how long the economy-centric buying spree will persist. Seasonally low volume this week could open up the door for profit takers as the week progresses. But for now, it seems traders are eager to look past potential legal woes for the White House in favor of the auspicious economic backdrop. The near-term direction of equity valuations will largely hinge on tomorrow’s revised second-quarter GDP reading. Stay tuned.
- Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Before The Bell
Stocks enter the final week of August with the many of the major averages at, or near, their all-time highs. Investors were cheered late last week by the confidence in the economy exhibited by Federal Reserve Chairman Jerome Powell.
Mr. Powell spoke at Jackson Hole, Wyoming, where the Fed holds its annual late-summer meeting. The Fed Chair sees business conditions holding up nicely for the foreseeable future, with little sign of overheating as inflation remains under control.
Chairman Powell also indicated that when it comes to raising interest rates, the pace will most likely continue to be a gradual one. One rate hike seems assured next month, but another one in December still depends on how the economy is performing.
The not-too-aggressive stance on interest rates seemed to help reduce the strength of the U.S. dollar versus other currencies on Friday, too. A bit of a pullback in the dollar helped energy and mining stocks, shares of multinational companies, and the emerging markets.
Investors clearly warmed up to the scenario envisioned by the head of the central bank, and sent stocks broadly higher. For the day, the Dow Jones Industrial Average gained 133 points; the NASDAQ added 68 points; and the S&P 500 tacked on 18 points. Both the NASDAQ and the S&P 500 closed at all-time highs. Market breadth affirmed the positive sentiment, with advancing issues outpacing decliners by more than two to one on the New York Stock Exchange.
The bulls were able to look past the latest round of investigations in Washington, as well as what appears to be slow movement in trade talks. For much of 2018, Wall Street’s concerns about the effect that recently implemented tariffs and pending new tariffs will have on corporate profits kept a lid on stocks.
Signs of some thawing with respect to the standoff on international trading recently provided room for optimism, although reaching workable agreements is proving a drawn-out process.
Nevertheless, the tone of trading has been helped by good showings from a number of retailers reporting their earnings of late. Signs of strength on the part of consumers are an important factor for the economy, which is largely consumer-based. This week, the second estimate for GDP in the June quarter is due out on Tuesday morning. The reading may provide further confirmation regarding a rosy business outlook.
- Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
