After The Close
Stocks ended the first Friday in August on a mostly upbeat note. At the close, the Dow Jones Industrial Average was up 136 points and the S&P 500 rose 13 points, but the NASDAQ lagged, rising only nine points. In terms of market breadth, winners moderately outpaced losers on the Big Board, but the reverse was true on the NASDAQ.
The release of the government’s monthly jobs report before the opening bell set the tone for trading. This closely watched data showed a bit of a summer hiring slump, with only 157,000 positions added in July. Expectations had been for a figure more in line with recent trends of closer to 200,000 new jobs a month. Even so, upward revisions to the May and June data were positives that were seen as making up the shortfall. Moreover, the unemployment rate fell to 3.9% from 4.0%, or close to the lowest level in recent history.
The jobs data provided by the Labor Department is important in that it affects the outlook for interest rates. In that respect, the latest employment numbers were viewed as not rocking the boat, particularly with wage growth of only 2.7% for the year. Contained wage increases on that order of magnitude are not seen as pushing the Federal Reserve to raise interest rates faster than currently envisioned.
The Fed met this week and did not raise rates, after having done so twice before in 2018. But the central bank is broadly expected to hike interest rates a couple of more times this year, and perhaps on a few occasions in 2019 if the economy is still plugging along.
Elsewhere, China proposed $60 billion in tariffs on U.S. goods if the United States implements its plan to slap tariffs on $200 billion of imports from China. Investors took the news in stride, apparently partly on the thinking that both sides may come to some sort of agreement that would keep the worst-case scenario on trade from materializing. Still, there is a possibility that corporate profits will be hurt if the ongoing trade disputes are not resolved.
In the meantime, earnings season has gone well, for the most part, maintaining support for stocks. Today, the consumer staples sector shined, although oil shares fell as the price of crude oil eased a bit.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Rather, the chief inducement to sell was a threat by the President to hit China with even bigger tariffs unless it came to the table and negotiated a more reasonable trade agreement. However, after the Dow Jones Industrial Average tumbled by more than 220 points in the first few minutes of action, the market began to retrace its losses. So, as we neared the end of the first hour of the trading day, the blue-chip composite had pared more than 50% of that deficit. Comparative strength in the NASDAQ, and especially in shares of Tesla (TSLA) helped calm some of the early jitters.
As for trade, China responded that it will retaliate if the United States goes through with its threats. So, shares of the core industrial giants, some of which are traded on the Dow, fell sharply at the outset. As noted, though, not all the news was bad, as Tesla said that it would be profitable in the second half. Also, DowDuPont (DWDP – Free DowDuPont Stock Report) reported better-than-expected quarterly results, but that blue chip eased back in price. Still, the market's selloff was contained, as strong earnings, a lesser rise in weekly jobless claims, and optimism about the pending and now just-released July employment situation kept the bears at some distance.
Meanwhile, the aforementioned comeback proved to be selective at first, so that as we passed the 90-minute mark of the trading day, the Dow was back down by some 165 points. However, the NASDAQ remained higher, as did the smaller-cap indexes, implying that it was mostly the tense trade situation that was behind the morning selling. That weakness could be seen in the major sectors, all of which were lower at that point, with particular softness in the basic materials and energy groups. Also, declining stocks were leading the way with a modest edge on winning issues.
But things would change as the afternoon arrived. On point, the market came back more quickly and strongly than earlier, and the gains were more broad-based, with the Dow joining every other index in the black as we moved inside the final two hours of the trading day. As before technology led the way, with Tesla continuing to surge, while Apple (AAPL – Free Apple Stock Report) saw its shares jump for a second time in as many days. The NASDAQ, not surprisingly, was the best performer among the core indexes, rising by almost 100 points in mid-afternoon. Only lingering trade issues kept the advance from really catching fire.
Importantly, as Apple shares soared, the tech behemoth became the first stock to ever cross the $1 trillion threshold. The issue then continued to sprint ahead, gaining more than six points by the close. Any nervousness ahead of the jobs release was not detectable. At the end of the session, the Dow would ease by just eight points, while notable strength was discernible in the S&P 500 Index, the NASDAQ (up 95 points), and the S&P Mid-Cap 400. Also, more sectors rose on the day than declined, while gaining stocks held a moderate lead on equities that declined. So, after a rocky start, the bulls managed to put in a constructive session.
Now, as to the morning, stocks were generally lower in Asia overnight, while the early read on the bourses in Europe shows a higher market. In other data, oil prices are off slightly; yields on the 10-year Treasury note, which closed at 2.99% late yesterday, are at 2.97% after the release of the jobs report. Finally, following news that non-farm payrolls had increased by 157,000 in July, against expectations of a rise of 188,000, the U.S. equity futures are showing early gains. In other aspects of this report, the jobless rate ticked down from 4.0% in June to 3.9% last month; the labor-force participation rate held steady at 62.9%; and average hourly wages rose by $0.07 in July and at a 2.7% rate for the last 12 months.
Also, estimated job gains for May and June were revised up by a combined 59,000 positions, thereby taking some of the sting out of the somewhat disappointing July increase. Overall, the employment picture remains bright. Also, with wages up by 2.7% in the past year, a tally that the Federal Reserve watches closely, there continues to be a good chance for an interest rate hike at next month's FOMC meeting. All in all, the economic picture is still uplifting, with just the threat of further trade discord between the United States and China being the main current threat to continued strong improvement.
