After The Close
The markets had a strong day of trading, as the Dow Jones Industrial Average and S&P 500 indexes both hit all-time highs. They started off strongly and continued to rise throughout the day, with the Dow hitting 26,697.49, and the S&P 500 reaching 2,934.80, before retreating slightly in the last part of the trading day. This marks the first new high for the Dow since January, while the S&P bested its August top. These moves were partially based on trade war fears ebbing a bit and a slightly weaker U.S. dollar, despite new tariffs slated to be enacted on China on September 24th. Most of the broader market enjoyed the rise in stock prices, as gainers outnumbered decliners by a 2.1-to-1 ratio. Top performing sectors on the day included Consumer Staples, Materials, and Technology, while the interest-rate sensitive Utility sector lagged the broader market.
One of the top performing stocks of the day was Under Armour, Inc. (UA). Shares of the atheletic apparel company rose in price after it announced a restructuring plan, including the layoff of 400 people globally, which will likely reduce its total fixed costs. In addition, Wells Fargo Corp. (WFC) announced a plan to lower its headcount by up to 10%, helping to strengthen margins. On the other hand, Thor Industries (THO) was down significantly, largely based on weaker profits and a reduced profit outlook.
Meantime, existing home sales for August were reported earlier in the day. These were unchanged at 5.34 million on a seasonally-adjusted full-year run rate. This result followed four months of sales declines. However, an inventory build occurred in the month, reversing three months of reductions. Home sales have been hurt by several headwinds, including higher commodity input costs, heightened labor costs, and increased mortgage rates.
Looking forward, there are no major economic events slated for tomorrow on the calendar. In addition, the earnings calendar is also quite sparse, though Steelcase Inc. (SCS) is expected to host its fiscal second-quarter conference call after the closing bell.
- 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
The U.S. equity market turned in a mixed performance yesterday that had a bit of a bearish undertone. On the positive side was a more-than-100-point advance for the Dow Jones Industrial Average and a four-point gain for the broader S&P 500 Index. Conversely, the tech-heavy NASDAQ Composite, the S&P Mid-Cap 400 Index, and the small-cap Russell 2000 all finished in the red. The driving force behind trading was again uncertainty about what impact the ongoing trade dispute between the United States and China will have on the global economy. On Monday, the major averages were weaker on news last week that the Trump Administration had levied $200 billion of tariffs on China-produced goods, which was met by China’s own $60 billion of retaliatory tariffs against the United States. Then on Tuesday, the markets rallied on sentiment that some trade agreements will eventually be reached between the bickering superpowers, and the tactics currently being used are designed to get China to the bargain table. Yesterday, investors continued to debate just how much of an impact the trade dispute will ultimately have on the global economy and financial markets.
Part of the mixed performance on Wall Street was the result of a good deal of sector rotation. There was a notable move into the financials, prompted by the recent rise in lending rates. Increased fixed-income yields help the earning power of the financial institutions, most notably the banks, and on that sentiment the banking and insurance stocks were in demand. Shares of JPMorgan Chase (JPM -Free JPMorgan Chase Stock Report) and Goldman Sachs (GS - Free Goldman Sachs Stock Report) were the big winners in the Dow 30.There also was some movement into the commodities areas, with the basic materials and energy groups the biggest beneficiaries. Conversely, there was some rotation out of the higher-yielding equities. The aforementioned rise in bond yields makes the higher-yielding equities less attractive to income-oriented investors. The utilities group was down nearly 2% yesterday.
Meantime, the news on the U.S. economy continues to prove supportive for equities. Yesterday, the Department of Commerce released a very good report on residential construction, with both housing starts and building permits coming in above an annualized rate of 1.2 million units last month. The 9.2% increase in housing starts was a very positive snapshot of the housing market and another key indicator that the U.S. economy is strengthening. The healthy state of the domestic economy is offsetting some of the trade war worries on Wall Street.
Turning to the day at hand, it will be a light one for both economic and earnings news. That, along with the Federal Reserve being in a quiet period ahead of the commencement of its two-day monetary policy meeting next Tuesday, will likely push a good deal of the investment community’s attention toward the trade war with China. And on point, the equity futures are higher this morning on sentiment that the U.S. and Chinese tariffs on reciprocal imports noted above were less severe than feared. That said, the trade relationship between the world’s two-largest economies is a fluid one and could shift quickly, and easily change the mood on Wall Street.
Looking at the overseas equity markets, it has thus far been a mostly positive day for stocks. The main indexes in Japan and Hong Kong finished higher overnight, while the major European bourses are comfortably in positive territory as trading moves toward the second half of the session on the Continent. Speaking of Europe, investors are keeping a close eye on the ongoing Brexit negotiations after yesterday’s appeal by Britain Prime Minister Theresa May to her European Union counterparts to drop their Brexit demands, which she believes could rip Britain apart. If the pending breakup were to become very messy, it could roil the global financial markets, which would probably not be a good thing for the world’s equity markets. We shall see how the Brexit negotiations play out. 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.
