After The Close
The major stock averages turned in a mixed performance on Wednesday. A strong rise on the Dow Jones Industrial Average was contrasted by a slight decline on the NASDAQ. The Dow was apparently helped by a lingering feeling of relief that certain proposed tariffs were not as drastic as they might have been. At the close, the Dow Jones Industrials rose 159 points; but the NASDAQ lost six points. Meantime, the S&P 500 edged a few points higher. Market breadth was unimpressive, though, with declining issues modestly outnumbering gainers on both the New York Stock Exchange and the NASDAQ.
Investors shrugged off the ongoing dispute regarding commerce between the United States and China, at least for the moment. Shipping giant FedEx (FDX) the other day noted in its earnings release that differences on trade policy were beginning to affect activity between the world’s two largest economies. But that concern was not felt much in the session just ended, partly as domestic business conditions continue to exhibit strength. A reading on the housing market this morning came in stronger than expected, and contributed to bullish sentiment.
In fact, the economy’s vigor showed up noticeably through an increase in bond yields. The yield on the benchmark 10-year Treasury note climbed to 3.08%, up from 3.05% on Tuesday. The push above the 3.00% level is potentially significant, particularly if the yield crosses the 3.12% high-water mark for 2018. That might indicate a further surge is possible.
The financial sector was one of the leaders today as a result of higher bond yields. Banks are expected to benefit from increased lending margins as yields on earning assets rise. Insurers will earn more income on new bonds purchased for their portfolios, too.
The higher-rate scenario was bad news for utilities stocks, though, which fell sharply on the day.
Elsewhere, the tech sector was relatively weak, as poor performances by Amazon.com (AMZN) and Microsoft (MSFT – Free Microsoft Stock Report) weighed on the group.
In other markets, the price of a barrel of crude oil rose about $1, to $71 in New York trading, after the Energy Department reported an expected two million barrel drop in domestic stockpiles.
Overall, the strength of the economy seemed to hold greater weight than trade concerns or rising interest rates in the case of the Dow stocks, for now.
- Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
After starting the week on a down note on Monday, the major equity indexes came roaring back yesterday, with the bulls in control for much of the session. The buying started overseas and the good tidings carried over into the U.S. market. Investors around the global, for the most part, brushed off the escalating trading tensions between the United States and its major trading partners, most notably China. The Asian powerhouse answered the latest round of $200 billion of tariffs on China-produced goods by the Trump Administration with $60 billion of retaliatory measures against the United States. A strengthening U.S. economy and some sentiment that the impact of the dispute will have a lesser impact on the global economy than some pundits may have initially feared has given investors some comfort. There also is a prevailing belief that the U.S. economy is in good enough shape to withstand some near-term disruptions caused by the trade disputes.
For the day, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index finished with respective gains of 185, 60, and 16 points. The buying was rather broadbased, with the small- and mid-cap stocks delivering nice advances, as well. Overall, advancing issues finished comfortably ahead of decliners on both the New York Stock Exchange and the NASDAQ, and there were far more up than down arrows among the 10 major equity groups. The energy, basic materials, and industrial stocks provided the day’s leadership, with higher oil prices both here and on the Continent helping the oil and gas stocks. Conversely, we saw some minor selling in the higher-yielding categories, with the uptick in fixed-income yields hurting the utilities and consumer staples stocks. Higher bond yields reduce the attractiveness of higher-yielding equities for income-oriented investors. The noncyclical consumer sector also was hurt by a disappointing quarterly report from industry heavyweight General Mills (GIS).
As noted, the big news yesterday was the ongoing trade dispute between the United States and China. It appears that investors are still operating under the stance that the world’s two-largest economies will eventually come to some trade agreements. That is still yet to be seen, but global investors seem to have taken some comfort in China's move to levy only a 10% duty on $60 billion of U.S. imports and the Trump Administration’s decision to remove some 300 China-produced products from the list of dutiable goods. The trade worries also are being somewhat offset by continued strong economic data stateside, including good reports in recent weeks on employment, manufacturing and nonmanufacturing activity. Pricing data last week also showed no noticeable spike in inflation, which has been a worry at times this year for equity traders. All in all, the economic data have provided support for equities as world leaders bicker over international trading terms.
Meantime, just moments ago, we received the latest noteworthy report on the U.S. economy when the Commerce Department released residential construction figures for the month of August. The report may for a rather good reading. Specifically, housing starts rose by a healthy 9.2%. to an annualized rate of 1.235 million, last month, which was a positive sign for a housing market that has recently underperformed the broader economy amid rising interest rates for home loans. Building permits, however, fell 5.7%, but the total was still rather healthy, also at more than 1.2 million units annualized.
With less than a half-hour to go before the commencement of trading stateside, the equity futures are presaging a flat to nominally lower opening for the U.S. stock market. Overseas, the bulls are being heard from again. The Asian indexes, finished higher, led by a more than 1% advance in Shanghai, while major European bourses are modestly in the black as trading heads toward the second half of the session on the Continent. In general, as noted above, there is a growing sense that the tariff quarrel could have been a lot worse than it is looking right now—and global traders are acting accordingly. Hopes of hopes of monetary stimulus from China to counter the trade dispute impact on the economy, as well as a pledge by Premier Li Keqiang not to use the devaluation of the yuan as a tool in the trade quarrel, reassured investors some too. 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.
