After the Close
Following a bearish open to the day’s trading, the major U.S. indexes clawed back about their breakeven lines on Tuesday afternoon. Early on, it appeared that tension between the United States and North Korea would hold back the averages. But sentiment evidently moderated as trading progressed. The NASDAQ fared the best throughout the day, boosted by notable strength in technology sector and unencumbered by select softness elsewhere. Still, the grouping, as well as the S&P 500, remains on track for its worst month since last October, before the post-election rally commenced. Attention is set to turn to tax reform, a central tenet of President Trump’s economic policy that is expected to be a top priority for Republican lawmakers after Congress’ August recess.
On the business beat, an encouraging update from The Conference Board helped to embolden the bulls as they recovered through the midday. The Consumer Confidence Index reading rose to 122.9 this month (from 120.0 in July), a beat that propped up trading in many areas but paradoxically failed to bring the retail sector higher. That group was weighed down by company-specific items from NIKE (NKE – Free Nike Stock Report), The Finish Line (FINL), and Best Buy (BBY), with the latter’s cautionary forward-looking statements undercutting previous stock-price gains from a strong earnings report.
Meanwhile, the oil market shed additional value on concerns related to the ongoing storm activity in coastal Texas. Hurricane Harvey and severe rainfall have wrought considerable damage in the region, with local industry also feeling impact. As productivity from oil drillers is likely to be stifled indefinitely, U.S. crude dipped $0.08 per-barrel to a five-week low.
The large-cap equity indexes continued their gradual climb into the final hour, and market breadth pulled even by the end of the day. The roughly equal number of advancing and declining stocks can be attributed to a recovering sentiment in the small-cap trading, where early-in-the-day struggles likely reflected profit taking amidst lower trading volume. Looking forward, with a dearth of earnings releases on tap, trading will center mostly on geopolitical developments and a Friday’s employment and unemployment reports. Otherwise, trading ought to heat up after the Labor Day holiday concludes. – Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EDT
The second day of the trading week got off to a difficult start for those long equities, with the Dow Jones Industrial Average off triple digits minutes into the session. The tech-heavy NASDAQ and the broader S&P 500 Index were under similar selling pressure. The reason is that news surfaced late last night that North Korea had tested a missile over Japan, as the nation is trying to develop nuclear warfare. The test missile, which landed in the Pacific about 735 miles from Japan, prompted a stern warning from the Trump Administration, roiling the world’s financial markets. Investors sought safety this morning in a reaction to the escalating geopolitical tensions.
However, as we move closer to the midday hour on the East Coast, all of the major equity averages, including the ones noted above, were rallying off of their intra-day lows. An encouraging report on the U.S. economy (see below) provided the impetus for the buyers to come back into the equity market. Still, declining issues are leading advancers by a wide margin on both the New York Stock Exchange and the NASDAQ, while the majority of the 10 major equity groups are still showing down arrows.
Speaking of the top-10 sectors, the biggest laggards are the energy and financial groups, with most of the damage being done by the above cited North Korea news. Conversely, there is some interest in the more-defensive sectors, including the consumer staples stocks. The spike in market volatility is pushing investors into more safe-haven areas. Likewise, we are seeing a pickup in interest in gold and fixed-income securities for their safety component. The price of gold hit its highest mark since November and the yield on the benchmark 10-year Treasury fell to its lowest level since the day after the U.S. Presidential Election. Too, there is buying in the defensive names, with shares of Northrop Grumman (NOC), Raytheon (RTN), Lockheed Martin (LMT) and General Dynamics (GD) all trading in positive territory this morning. This is helping the industrial sector, which, along with the technology space and the healthcare stocks, have moved into positive territory.
As noted above, we did receive an important reading on the U.S. economy this morning. Specifically, the Conference Board said that its Consumer Confidence Index increased to 122.9 in August, from 120.0 in July. The report provided support for the broader stock market, but ironically did not give much of a boost to the consumer discretionary names. In the consumer category, the impact of the strong confidence reading was offset by a number of company-specific reports, including a downgrade to NIKE (NKE – Free NIKE Stock Report) by a major investment bank, a reduced full-year profit forecast from retailer The Finish Line (FINL), and commentary from Best Buy (BBY) that the electronics retailer’s recent strong quarterly same-store sales performance should not be viewed as a “new normal”. All three of the retail stocks fell in response and are weighing on the overall performance of the category.
Adding these developments up, it is shaping up to be a volatile day for the stock market. With little earnings news of note coming out this week, investors are taking their cues from other areas, which we saw this morning from the disparate reactions to the escalating geopolitical tensions with North Korea and the encouraging consumer confidence reading. Stay tuned. – William G. Ferguson
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before the Bell
Following a brief early tease to the upside, which saw the Dow Jones Industrial Average rise close to 50 points in minutes after yesterday's market open, further reflections on the widespread damage caused by the hurricane that ravaged Houston and other parts of the southeastern portion of Texas over the weekend, the equity market quickly turned lower. As has been the case for much of this year, however, the pullback was relatively mild, with the Dow continuing to trade between 20 and 40 points lower, while the S&P 500 held just below the breakeven line.
Breaking things down, the most of the morning saw more stocks decline than rise on the NYSE, although the differential was modest. One outlier was the NASDAQ, which gained nicely during this time. As for individual stocks, the Dow was pushed lower by a multi-point early decline in shares of Travelers (TRV – Free Travelers Stock Report). Energy prices also faltered on the damage brought on by the hurricane, with driller Schlumberger (SLB) pulling back, and nearing a 52-week low in the process.
As to other trading influences, with a heavy week of economic news before us, headlined by this Friday's reports on employment and unemployment, along with key data on manufacturing, Wall Street was also consumed with the latest political news, where, this week, President Trump is expected to push his tax reform package, the timing of which could be in some jeopardy if costs to pay for the hurricane balloon in the months to come. Also, with pivotal data due on the economy, some focus will logically turn to the Federal Reserve, as it prepares to meet this month.
Meanwhile, after this mid-morning Dow reversal, stocks steadied somewhat, so that as we neared the noon hour in New York, the blue-chip composite was nearing breakeven, while the NASDAQ's gain was increasing. Then, as the afternoon got under way, stocks slipped anew, and within an hour, or so, the Dow and the S&P 500 were well into the red, while the NASDAQ's gain, once 27 points, had eased to nine. Joining Schlumberger in the red, meantime, was food giant General Mills (GIS), with its setback bringing that quality issue to within a point of a new low.
Stocks then stayed range-bound into the late afternoon, before some last minute buying almost wiped out the Dow's deficit. Even so, at the conclusion of the session, that composite was off by only five points. A token gain, meantime, was tallied by the S&P 500 Index and a 17-point advance was inked by the NASDAQ. In the end, much of the day's focus was on Hurricane Harvey, which was crippling the energy industry in Texas. As for the ultimate cost of the tragedy, above and beyond the human toll, it will be steep, with a partial offset from rebuilding.
The potential of such rebuilding, in fact, did help one Dow stock to a hefty gain on the day, as The Home Depot (HD – Free Home Depot Stock Report) jumped nearly $2.00 a share. Elsewhere, there was little excitement on this Monday in late August. Looking ahead to a new day now, we see that stocks were tumbling across Asia overnight, on jitters about North Korea that emerged late yesterday, while in Europe, the major bourses are now trading much lower, as well, on those same fears. In other markets, oil is little changed; gold, up sharply in recent weeks, is soaring again after North Korea launched another missile; and Treasury yields are down notably in a flight to safety. Finally, our futures are moving decidedly lower at this early hour, with the Dow suggesting an opening loss in excess of 100 points. Stay tuned. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
