After The Close
On a Friday that saw neither the bulls nor bears establish dominance, the major U.S. indexes each rose in value. The Dow Jones Industrial Average spent the entire session in positive territory, as strength from Boeing (BA – Free Boeing Stock Report), Verizon (VZ – Free Verizon Stock Report), and its technology components. The tech-laden NASDAQ was accordingly strong, as well, helping to offset yesterday’s downturn, while the S&P 500 turned in a more modest gain for the day.
But despite the strong end to the week by the indexes, the market sectors exhibited more-mixed results. While consumer non-cyclicals, healthcare, and especially the tech and telecommunications sectors delivered solid aggregate growth, weakness elsewhere held back broad-based gains. Energy and utility stocks shed gains from early in the week. Similarly, the basic materials group continued its up-and-down week, as traders weigh recent growth from the construction industry against uncertainty as it pertains to boosted federal infrastructure spending, a prospect that solidified the sector as one of the primary drivers for the market’s post-election rally.
There were some developments on the business beat that likely contributed to today’s indecisive tone. The Federal Reserve’s Industrial Production report revealed a 0.3% decrease in factory output during the month of August, and an aggregate decline of 0.9%. This was largely caused by Hurricane Harvey-related damage, which chiefly affected the oil and chemical production sectors. Retail sales were also disrupted by inclement weather, with last month’s figure representing a 0.2% decline. Traders did digest some positive economic updates, however. As we pointed out in our midday write up, that same report showed automobile output rose 2.2% in August, the first uptick in four months.
Meanwhile, U.S. crude oil settled in just below $50 per-barrel, wrapping up its best weekly performance since mid-summer on a high note. Not only were some refineries resuming operations after shuttering temporarily in the wake of Hurricane Harvey, but an apparent, albeit gradual, tightening of the global commodity market has also boosted recent optimism. Oversupply from OPEC and other foreign operators has pressured oil prices for some time, but recent statements by the cartel suggest the near-term outlook has improved. Demand trends figure to improve in 2018, a forecast echoed by the U.S. Energy Information Administration. We expect the elevated barrel prices to face some challenges when trading resumes on Monday, though the outlook has undeniably brightened.
So, the bulls will look to sustain the rejuvenated momentum next week. In a little over a fortnight, third-quarter earnings is set to give investors a chance to reappraise the strength of Corporate America. Until then, traders will look for updates on economic growth, policy statements by the Federal Reserve, and additional transparency from the White House on its plans for tax reform and infrastructure spending. As ever, stay tuned.
— Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 12:20 PM EDT
Wall Street began the day in mixed fashion, but a positive trend began to emerge around mid-morning.
It appears that early concerns about the latest missile launch by North Korea and suspected terrorist bombing in London were put aside to focus on fundamentals. On that front, the news was mixed. The latest Federal Reserve report on Industrial Production showed a 0.3% dip in factory output for August (amidst a 0.9% drop, overall), largely due to Hurricane Harvey’s impact on oil refining and chemical production in Texas. On the positive side, automobile output was up 2.2%, marking the first uptick in four months.
Elsewhere, August retail sales declined 0.2% versus expectations of a 0.1% gain, and the figures for the prior two months were revised downward. The auto industry once again had an outsized impact on the results, with sales at dealers down 1.6% after a flat reading for July. Here too, business probably was hurt by Harvey, but is likely to be counterbalanced by replacement demand. Excluding autos, retail sales would have been up 0.2% last month.
As we crossed the noon hour of trading in New York, the key equity indexes were uniformly higher, each around their peaks for the session. The Dow Jones Industrial Average, having spent the entire morning in the green, was ahead by 45 points. Meanwhile, the broader S&P 500, having worked its way into positive territory after spending the first hour of trading in the red, was up by two points. The tech-heavy NASDAQ, after vaulting 45 points off of its morning low, was ahead by 20. Breaking it down by market sectors, technology, telecommunications, and consumer non-cyclical stocks led the advancers, while energy and healthcare issues headed the loss column.
Elsewhere, oil prices were flat, but at just under $50 a barrel were near their highest levels in five weeks. Concern over continued supply glut was eased somewhat following more bullish global demand forecasts from OPEC and the International Energy Agency.
Trading was far less upbeat at the key European bourses. London’s FTSE 100 index fell over a percentage point, to a four-month low. Germany’s DAX and France’s CAC-40 sustained relatively modest setbacks.
– 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
A surprisingly strong Consumer Price Index report for August, in which that key metric showed a 0.4% increase for the month and a 1.9% gain on a year-over-year basis, put some initial pressure on an extended and overbought stock market. However, as has been the case for much of this year's bullish run, the equity market steadied itself, and with the help of formidable gains in the shares of aerospace giants Boeing (BA - Free Boeing Stock Report) and United Technologies (UTX - Free United Technologies Stock Report), the Dow Jones Industrial Average tip-toed back into the black shortly after the open, setting one more all-time intraday high in the process.
However, the S&P 500 Index, and especially the tech-laden NASDAQ, did not follow suit, posting moderate losses. The small-cap indexes were just slightly in negative territory as the morning progressed. The modest aggregate setback, which was also reflected in moderate weakness in the 10 major equity groups, was additionally seen in the advance-decline ratio that favored the bears. The early decline, as noted, was driven by some concerns that the higher inflation result could encourage the Federal Reserve to raise interest rates later this year, although we are doubtful that one number would be sufficient to sway the central bank.
Meantime, as the morning progressed, the stock market remained split between the Dow and the other key indexes, with the higher CPI number helping to push yields on the 10-year Treasury note up to 2.22%, before easing back somewhat. Just days ago, the rate was barely above 2.00%, and looked to be headed lower still. In other news of import, Wall Street also was concerned about geopolitical tension amid reports that North Korea may be preparing to test an ICBM missile. In any event, the Dow continued to drift higher as the morning wound down, while the NASDAQ, in particular, remained lower.
This divided pattern continued into the afternoon's trading, with the Dow, which had surged to a late-morning advance of some 55 points, settled back into the 40-50-point area, helped by the aforementioned strength in Boeing and United Tech, as we proceeded inside of the final two hours of trading. However, the NASDAQ retained a deficit, averaging about 25 points at that time, after being off about 35 points earlier. As before, the market continued to look for hints about looming Federal Reserve policy shifts in the wake of the stronger CPI report. The upcoming Fed meeting is next week.
Things stayed in that same narrow range into the close, with the Dow and the NASDAQ continuing to go in opposite directions in the latest episode of sector rotation. In all, the blue chip composite concluded matters with a gain that was inside the earlier range of 40-50 points, coming out ahead by 45 points. The NASDAQ's deficit was near the day's low, off by 31 points. Small losses were tabulated by the S&P 500, the S&P 400, and the Russell 2000. At the close, meantime, gaining stocks held a slim lead over declining issues on the NYSE, while advancing stocks lagged on the NASDAQ. Also, more groups than not ended lower.
Looking out to the final session of this record-breaking week for Wall Street, we see that stocks across Asia were trading in a mixed pattern overnight, while in Europe, the major bourses are ticking lower on geopolitical concerns. Also, of note, oil, after gains in recent sessions, is flat so far in early dealings today; interest rates, up slightly again yesterday, are ahead nominally so far this morning; and gold is little changed. As to our futures on this busy day for economic news, which is headlined by reports on industrial production, factory usage, and consumer sentiment, they point to a somewhat softer start when trading resumes shortly.
— Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
