After The Close
The stock market started positively today, as Johnson & Johnson (JNJ – Free J&J Stock Report) was ordered to pay a smaller-than-expected fine in Oklahoma for its role in the opioid epidemic in that state. Additionally, merger talks between Altria (MO) and Philip Morris International (PM) were confirmed. The Dow Jones Industrial Average climbed by as many as 155 points in early market action, while the S&P 500 and NASDAQ also rose. However, sentiment turned negative, and the markets started to retreat. The composites fell to breakeven levels, and eventually slumped into the red. The indices then traded sideways for the rest of the session. Overall, the Dow closed lower by 121 points, the S&P 500 was down nine points, and the NASDAQ shed 27 points.
Moreover, market breadth was somewhat negative, as decliners outpaced advancers by a 1.6-to-1.0 ratio. Utility stocks were among the best performers on the day, aided by a decline in long-term interest rates. On the other hand, energy equities were among the weakest, despite a late rise in the price of related commodities.
In commodity news, oil prices benefited from a late rally today. This market has been down considerably over the past several trading sessions, so this might be part of a bounce-back attempt, despite some severe oversupply concerns. Meantime, U.S. Treasury Bond yields were lower across the board, and the yield curve moved further into an inversion. An inversion is usually a predictor of a potential recession and is often a negative for financial sector earnings. Too, the U.S. 30-year bond yield is now below the dividend yield of the S&P 500, which has not happened since March of 2009. Elsewhere, the VIX Volatility Index was higher today, as demand for options protection increased.
Looking ahead to tomorrow, a bunch of economic data is slated for release, including the Energy Information Administration’s weekly status report on crude oil inventories. Too, quarterly earnings reports from a few retailers are slated to come out. We think that trading tomorrow will hinge on any developments in trade talks with China or any news from the U.S. Federal Reserve about potential changes in interest-rate policy.
– John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell
Following a meltdown on Wall Street this past Friday, after threats by China and the United States to further ratchet up their already intense trade war and a seeming standoff between the warring parties over the past weekend, the U.S. equity futures started out sharply to the downside in trading Sunday night. Then, the President suggested that China wanted to resume trade talks and that the two sides would again sit down to hopefully try and hammer out their differences. That helped the futures do an about face and move notably higher in the pre-market hours.
This uptick in the futures quickly translated into a 300-point early rise in the Dow Jones Industrial Average. But that early surge would not last, and within minutes the blue chip composite would lose about two-thirds of that initial advance. However, the bulls would soon regroup and the major indexes would all rush back to their morning highs as the lunch hour approached. Then, the indexes would go back and forth between their highs for the day and some lower levels. As the afternoon got under way, the Dow would still hold a formidable gain.
Interestingly, while the Dow, the S&P 500, and the NASDAQ were up about 1% in mid-session and gaining stocks held a large lead on declining issues of more than two to one on the Dow and the NASDAQ, the number of new lows were topping new highs by a large margin on both of those exchanges, which would imply that there still were some weak underpinnings to this rally. That caution aside, pundits speculate that the markets were rallying yesterday because investors want to believe that the trade war will end fairly soon.
At the same time, we note that we have been in apparent thaws before only to back off into a further escalation in tensions. Will this time be different? It is too soon to say, but it also is true that no one wins in a trade war. In the meantime, shares of Apple Inc. (AAPL – Free Apple Stock Report), a clear winner if the trade war can be settled, rose nicely during the early afternoon. Another Dow component NIKE (NKE – Free NIKE Stock Report) also climbed in trading, as it, too, would be a beneficiary of a trading war thaw. Most groups also rallied.
Meanwhile, after a further setback in bond yields early in the day, the 10-year Treasury note saw its yield nudge slightly higher, rising to 1.53%. That debt instrument's sharp drop in yields and worries about an inverted yield curve, in which shorter-dated debt returned more had increased fears of a recession. At this time, we believe such fears to be exaggerated and sense that the economy will continue to amble forward, if at a more gingerly pace. The slight uptick in yields yesterday suggests that such recession fears might be easing a touch.
The stock market then would meander about at strongly higher levels, but until the final few minutes of trading would stay somewhat range-bound with the Dow holding higher by some 200 points or so. Then, there would be a buying flurry at the close that would lift the blue chips by 270 points as the session would end. The NASDAQ would add 102 points. Looking out now to a new day, we see that stocks were generally higher in Asia overnight but are showing early losses in Europe this morning. Over here, the futures are suggesting a higher opening today.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
