After The Close
The stock market started in the green today, aided by Dow-component Microsoft (MSFT – Free Microsoft Stock Report), which announced a dividend hike and a $40 billion-dollar stock-repurchase authorization after the closing bell yesterday. Additionally, existing-home sales, leading indicators (which were flat), and the Philadelphia Fed survey were all better than forecast. Meantime, initial jobless claims were lower than expected. The Dow Jones Industrial Average climbed by more than 100 points in early action, while the other indices were rose in tandem. The market then receded some before attempting to make another attempt to reach all-time highs. Though these efforts failed, the companies were well within 1% of reaching those totals. The Dow was up 125 points at this juncture.
Still, the markets started to taper off in the second half of the day, giving back most or all of the gains. The Dow, for example traded in the red, while some other indices eased below breakeven. Overall, the Dow closed down 52 points, while the S&P 500 was on the neutral line.
Moreover, market breadth started the day quite positive, but ended directionless. Advancers and decliners were nearly even on the day. Healthcare stocks were among the best performers, while energy equities were among the weakest.
In commodity news, oil prices spent most of the day in the green but finished just above breakeven levels. Meantime, U.S. Treasury bond yields were mixed, though they spent much of the day lower. Still, many of the yields were not far from unchanged. The VIX Volatility Index ended the day not far off of breakeven either, after spending much of the day lower.
Looking ahead, the economic calendar is quite sparse tomorrow, while there are not any major quarterly earnings releases expected. This lack of items on the docket suggests that trading will be focused on any new developments out of Saudi Arabia or the U.S. trade negotiations with China.
– John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Stocks moved moderately lower on the eve of the conclusion of the Federal Reserve's two-day FOMC meeting as concerns lingered about the outcome of that gathering. To be sure, expectations for an interest rate cut were near unanimous, with almost all looking for a reduction of 25 basis points. The big unknown going into that meeting was what the central bank would say about future rate plans. Most pundits believed that the Fed would take a measured view. That is, it would raise the possibility of another interest rate reduction later this year, but not predict one with any certainty.
So, stocks wilted initially, as the Dow Jones Industrial Average gave back 40 points after the first hour of trading, while the NASDAQ fell 18 points. The small-cap Russell 2000 also declined. Meanwhile, there was selective strength in technology and some defensive issues, but further weakness in the basic materials and industrial sectors. Also laboring were shares of the giant carrier FedEx (FDX). As to the Fed, all systems were go regarding the likelihood of a rate cut, with the recent tick-up in inflation being of utmost importance for nervous investors.
In other news as we awaited the end of the FOMC meeting at 2:00 PM (EDT) yesterday, we saw that housing starts jumped ahead in August, rising to an annualized rate of 1.364 million units. That total, the best in more than a decade, easily surpassed forecasts of 1.250 million homes and the July tally of 1.191 million units. The 12.3% increase, as noted, blew away consensus views and along with the prior day's upbeat tallies on industrial production, signals that the nation's economy is not about to falter unless the global outlook, already under pressure due to the attack on Saudi Arabia's oilfields over the weekend, weakens further.
Elsewhere, there was little news on the trade front, where the United States and China will try to reach a détente in the coming weeks. In still other doings on this important day for the economy, oil prices retreated again after the President told the Treasury Secretary to "substantially increase" sanctions on Iran after the aforementioned attacks targeting the Saudi oil production. But the big event yesterday was the Fed meeting, which at its conclusion saw the central bank bump up the federal funds rate target by 25 basis points, the second such move this summer.
Meanwhile, after being modestly lower throughout the morning, equities weakened as the noon hour arrived in New York, leaving the Dow off by 75 points and the NASDAQ lower by 32 points. Clearly, at that point, the market was not looking for a positive surprise from the Fed. In fact, the averages drifted still lower as the witching hour approached, in particular the NASDAQ, before firming a little just before the release. The market then sold off aggressively in the hour after the meeting's conclusion, as investors apparently wanted some assurance that further rate cuts would follow. They did not get it.
The stock market then would spend the final hour recovering all of its losses and then some, especially on the Dow and the S&P 500, with the former ending matters in the green by 36 points after an earlier 200-point slide. The S&P 500 would finish ahead by a point, while the NASDAQ and the Russell 2000 would close in the red. Bond yields also would eased somewhat. This up-and-down showing likely reflects the back and forth among investors and the uncertainty about prospective Fed action. Essentially, what the Fed indicated was that monetary action would be data driven.
Looking out now on a new day, and after the fireworks of yesterday, we see that the major indexes were mostly higher in Asia overnight, while in Europe the early read is positive, as well. Also, Treasury note yields, down to 1.79% on the 10-year note, are stable this morning at 1.79%, and oil prices, off again yesterday, now are moving higher. Finally, after the excitement of the past 24 hours, the U.S. equity futures are indicating a slightly 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.
