The stock market, which rebounded nicely last week--highlighted by a Thursday advance of 147 points in the Dow Jones Industrial Average--following some earlier choppiness, sailed into Friday's concluding session with further morning gains, buoyed by advances in the semiconductor stocks. The financials also took the lead early on a day that was rich in economic reports and, subsequently, in global trade rhetoric. In all, early on, the Dow jumped by another 70 points, climbing past 26,200 and to within some 400 points of its all-time high. The other averages moved ahead, as well.

This strong initial showing came on the heels of mixed economic news. First, the U.S. Census Bureau reported that retail sales had risen by a scant 0.1% in August from July. A gain of 0.4% had been the forecast. Of note, while sales were up nicely at health and personal care stores, gasoline stations, and over the Internet, they lagged badly at clothing and department stores, furniture retail establishments, and restaurants. Still, sales were ahead 6.6% on a year-to-year basis, signaling that this durable economic upturn retained a good portion of its earlier momentum.

Then, 45 minutes later, the government reported that industrial production had gained 0.4% last month, the same increase as in July, but less than June's 0.6% advance. The improvement was most pronounced in the two smallest of the three key components. (Specifically, mining and utilities posted gains of 0.7% and 1.2%, respectively.) The largest factor, manufacturing, saw output up just 0.2%, after increases of 0.7% and 0.3%, respectively, in June and July. The nation's factory operating rate ticked higher, as well, going from 77.9% to 78.1%. Neither of these mixed reports had much impact on trading.

As to stocks, the early gains held until late morning, when sudden selling ensued after the President suggested he wanted to move forward with $200 billion in tariffs on goods from China. Ironically, it had been optimism surrounding renewed trade talks with that nation that had spearheaded the market's week-long advance until that point. Encouragingly, though, the setback in the equity market was fairly mild, with the large-cap indexes--the Dow, the S&P 500, and the NASDAQ--all easing just modestly into the red until mid-afternoon, while the smaller composites, which are less affected by trade developments, held onto nice gains.

All of this was against a backdrop that will feature the issuance of a wide array of business metrics in the new week, including data on housing starts (on Wednesday), the leading indicators (on Thursday), existing home sales (on Thursday), and bank loans and the rig count (on Friday). The housing reports will be most critical, as that sector has shown some retrenchment in recent months, perhaps on higher mortgage rates. Overall, however, much of the week again will be consumed with developments on the trade front as well as concerns ahead of the following week's FOMC meeting, where an interest rate increase is the general forecast.

The market would then proceed to rebound somewhat as the session drew to a close, with the Dow ending higher by nine points. The S&P 500 would wind up adding less than a point, while the NASDAQ, beset by selective weakness in technology, would lose a scant four points. However, the S&P Mid-Cap 400 and the small-cap Russell 2000 would close nicely higher, as rising stocks on the Big Board retained a slight advantage over losing issues. Gaining and declining sectors, meantime, were fairly evenly split with the industrial and the basic materials groups leading the advancing sectors, while the telecom and utility groups brought up the rear.

Looking ahead to a new week now and, no doubt, to more trade developments, we see that stocks opened the week with modest losses in Asia overnight, while in Europe, the principal bourses are now pointing lower, as well. Elsewhere, yields on the 10-year Treasury note, which ended last week at 2.99%, are passing hands at 3.01% at this time. Also, oil prices are showing early modest gains and U.S. equity futures are suggesting a somewhat weaker opening when trading resumes this morning.

– Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.