After The Close
Stocks began Monday on a bullish note, with each of the major U.S. indexes setting intraday trading highs amidst a buoyant tone that persisted well into the second part of the day. News of a high-profile merger in the defense industry between missile and satellite manufacturer Orbital ATK (OA) and top-five U.S. defense contractor Northrop Grumman (NOC) stoked the initial rally. Momentum was sustained by a prevailing assumption that this week’s Federal Reserve meeting will yield no change in the currently amenable interest rate environment. Investors will look for more clarity on the central bank’s plans for early 2018, which they should be afforded over the two-day meeting and the subsequent statements made by a number of Fed officials on Thursday and Friday.
Meanwhile, oil breached the $50.00 per-barrel threshold briefly, before settling just below that mark at the end of the day. Cautious optimism that the global commodity market is tightening after an extended, and ongoing, period of oversupply prevailed. Both domestic and foreign agencies have recently brightened their demand forecasts for 2018, while the impact of recent Hurricanes on U.S. refineries is expected to be altogether manageable. Crude oil rose two cents in value, to $49.91, its highest closing level in seven weeks.
As the afternoon progressed, the large-cap composites showed some selective selling pressure, with the S&P 500 and NASDAQ each shedding gains around 2 P.M. (EST). The latter, in fact, spent some time in negative territory. Overall, following the mid-afternoon moderation, it was still a session controlled by the bulls. The basic materials, financial, and industrial sectors were the leaders, while utility and consumer cyclicals struggled from bell to bell. Market breadth showed a 1.4-to-1.0 ratio of advancing to declining stocks, underscoring the mostly positive tone to today’s trading. At the closing bell, the Dow Jones Industrial Average was up 77 points; the NASDAQ managed to reemerge above its breakeven line, though well below the midday highs; the S&P 500, though also ultimately shy of its earlier apex, recovered an impressive amount of its daily gains and finished four points higher than last week’s closing level.
The rest of the week’s movement will largely be decided by the economy, specifically as it relates to the Federal Reserve and its monetary policy. Updates in the housing sector will also play a role early in the week, while developments from Washington could always insert themselves into the equation this week. That latter scenario is worth watching tomorrow, when the President addresses the United Nations. With the indexes near all-time highs, we suspect some profit taking could hinder significant gains from being realized.
— Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 12:15 PM EDT
Stocks opened higher today and have been able to extend these gains throughout the morning. At just past noon in New York, the Dow Jones Industrial Average is up 83 points; the broader S&P 500 Index is ahead six points; and the NASDAQ is higher by 26 points. Market breadth is positive, as advancing issues are outpacing decliners on the NYSE. From a sector perspective, the technology and basic materials issues are displaying some leadership, while the utility and energy stocks are showing weakness.
Elsewhere, the housing market will be in the spotlight over the next few days. Specifically, the NAHB (National Association of Home Builders) Housing Market Index slipped to a reading of 64 during the month of September, where analysts had been looking for a somewhat stronger reading. Tomorrow, housing starts and building permits for the month of August will be released, and on Wednesday, the latest existing home sales figures will follow. Furthermore, the FOMC will be meeting over the next few days, culminating in an interest-rate decision on Wednesday afternoon.
Finally, few corporations posted their financial results over the past 24 hours. While the next few weeks will likely be a bit quiet, as the third quarter draws to a close, some companies may well be updating their quarterly forecasts.
Technically, stocks have put in an impressive performance over the past few sessions. With today’s advance, the major equity averages are pressing into new high ground. Looking ahead, much will likely depend on the economic and corporate profit outlooks, and possibly some positive developments out of Washington.
— Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
As we start the second half of September, a month that has historically not been good for those long equities, we see that such has certainly not been the case thus far in 2017. Indeed, the bulls are not only holding their own, but are exerting their muscles. Over the last fortnight of trading, most of the major U.S. equity averages have hit or flirted with all-time highs. The Dow Jones Industrial Average closed at record highs a few times last week, the broader S&P 500 Index hit the psychologically significant 2,500 mark, and the technology heavy NASDAQ has provided leadership several times since the start of the month. On Friday, the Dow 30, the S&P 500 Index, and the NASDAQ climbed 65, five, and 19 points, respectively, and advancing issues led decliners by a comfortable margin on both the New York Stock Exchange and the NASDAQ.
Last week, the market rose on a number of factors, including news that North Korea did not launch another test missile during the celebration of its anniversary as an independent nation, relief that the impact of Hurricane Irma on Florida was less severe than predicted, and reports that President Trump and Democratic leaders had agreed upon a deal to raise the debt ceiling and avoid a government shutdown. The latter event removed a situation that may have rattled the world financial markets. But perhaps the biggest catalyst last week was renewed hopes that the slightly less contentious environment in Washington D.C. may help the Administration’s efforts to put in place a comprehensive tax reform plan that most pundits believe would be good for the economy, Corporate America, and ultimately Wall Street. Our sense is that a good portion of the historic bull run since last November’s election has been driven by hopes of some positive changes in the U.S. tax code structure.
Meantime, the news from the business beat last week was a bit disappointing. On Friday, the investment community received two uninspiring reports: declines in both retail sales and industrial production during the month of August. This week, the news on the economy will be rather light again with the only two notable reports coming from the housing sector, with data due on housing starts (Tuesday) and existing home sales (Thursday). That said...
The investment community’s attention this week will be focused on the Federal Reserve, which begins its two-day monetary policy meeting tomorrow. The consensus is that with inflation low right now, the country recovering from two hurricanes, and lackluster data on employment and retail sales, the central bank will keep interest rates steady at this week’s meeting. Thus, investors may be more interested in what Fed leaders have to say about the course of monetary policy over the remainder of this year and the beginning of 2018, and its plans to reduce the central bank’s bloated ($4 trillion) balance sheet. And they will certainly get some commentary on these issues, as a number of Fed officials are scheduled to speak on Thursday and Friday.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are indicating a higher opening once again for the U.S. stock market. So far today, overseas trading has been bullish, with a number of international equity indexes hitting record highs this morning and the U.S. dollar at its highest point against Japan’s yen in two months on expectations the Federal Reserve will unveil a plan on Wednesday afternoon on how it will trim its massive balance sheet. Investors should also note that there are a few other international events that may have an impact on the course of trading over the next five days, including President Trump’s speech at the United Nations tomorrow and the election in Germany. Stay tuned.
— William G. Ferguson
