After The Close
U.S. stocks were mostly mixed on Friday, with each of the major indexes recovering early-day losses in the late afternoon. The turn in sentiment can be largely attributed to the news that the Republican health care replacement bill would not receive the requisite support for its implementation. Overall, it was a down week for the large-cap composites, though we suspect profit taking amidst elevated valuations were partly to blame.
Following the news from the Hill, the healthcare sector turned its fortunes around considerably. The tech sector struggled, as Apple (AAPL – Free Apple Stock Report) wraps up its weakest week on the Exchange in more than a year. A lukewarm reception to the iPhone 8 (released today) dragged sentiment (and the stock price) lower. Typically, however, the company sheds some market value when a new product is released, as investors reassess the rally in value when said products are revealed.
Though we anticipate trading to exhibit some back and forth between the bulls and bears ahead of October's earnings season, there are some forthcoming releases worth keeping a tab on. For one, next week will bring a revision to the second-quarter GDP figure. The U.S. Labor Department's employment update will be a closely watched release next week, as well. With the Federal Reserve striking a notably hawkish tone following its two-day summit, we suspect traders will be increasingly concerned with the economy's rate of growth. With the odds of a December interest rate hike suddenly likely, we would not be surprised to see more strength in the financial sector in the event these releases exceed expectations.
Meanwhile, U.S. crude oil delivered another weekly gain, finishing the day up $0.11 and above $50 per barrel. Sentiment has been noticeably more positive in the space since domestic and foreign agencies announced their rosy outlook for demand in 2018. This would help to accelerate the inventory reductions which have hindered price gains for some time. Also, the unlikely event that OPEC, Russia, and other oil producing nations can extend and expand its drilling accord would likely help to further push the commodity price higher.
So, in the final half hour of trading, we saw the S&P 500 and NASDAQ reach their respective breakeven lines. The Dow, once down by as much as 35 points after lunch, managed to climb back to near even, as well, underscoring the still-bullish hue coloring the market. Stay tuned.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EDT
The major stock indexes appear to be consolidating recent gains, and are on track to close the week, and the last official day of summer, in relatively quiet fashion. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is down 28 points; the S&P 500 is off a couple of points; and the NASDAQ is a lower by a handful of points. Market breadth is broadly positive, though, indicating some underlying strength.
In a sense, the market may be in somewhat of a quiet period after having enjoyed nice gains so far this year. Pending in the coming weeks is what could be a catalyst for the next leg higher for stocks, in the form of third-quarter corporate earnings reports. If the broad pattern of companies exceeding expectations and raising their forward guidance persists, another rally would be the logical outcome. That remains to be seen, of course.
Investors are also awaiting major economic data, with the third revision to second-quarter GDP due out next week and the Labor Department’s employment report for September due out the following week.
Legislatively, questions regarding potential changes to the tax code still need to be resolved and another challenge to the Affordable Care Act is being formulated. Wall Street is waiting to figure any actions by Congress into stocks’ valuations. Tax reduction would almost certainly be greeted warmly, given the positive effect it would have on corporate profits. For now, though, a wait-and-see posture is called for.
In the market’s major sectors, energy stocks are showing relative strength, despite little change in oil quotations. Today is the last day of an OPEC meeting in Vienna, and the cartel does not appear to have been able to reach an agreement to extend output cuts.
Even so, investors have been cheered by signs of strong summer demand for petroleum products. There are also indications that refinery outages in Texas due to storm-related disruptions will crimp supplies of distillates, such as diesel fuel, heating oil, and jet fuel. That may well support industry refining margins for a while.
Heading into afternoon trading, few dramatic moves look to be on tap.
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
The penultimate trading week of September, a month that has historically been a difficult one for investors, enters its final trading day with the major averages not too far removed from where they began the current five-day stretch. There have been little surprises this week—the Federal Reserve did what investors expected with regard to monetary policy (more below)—to push the market, which is trading near all-time highs, forcefully in either direction. Further, investors have received little economic or earnings news of note to push the needle in favor of the bulls or the bears. Hence, the atypical lack of volatility we are seeing in the market this September.
Yesterday, the news was light, as many traders were off in observance of the Jewish holiday Rosh Hashanah (that will be the case once again today). The light news day had investors focused on Wednesday’s afternoon monetary policy statement from the Federal Reserve. As noted, the central bank did what pundits expected it to do. Specifically, it kept the federal funds rate at 1.0% to 1.25% and laid out its plan to begin unwinding the bank’s bloated ($4.5 trillion) balance sheet. The Fed said that the low inflation environment and financial damage from recent hurricanes did not justify an interest-rate hike this month. The lead bank did leave the possibility of a monetary tightening in December on the table. That, along with some concerns that the balance sheet reduction, via bond selling, will push bond yields higher in the future, had a slightly negative effect on stocks yesterday.
Indeed, there was a modestly bearish tone to trading on Thursday, with the major equity averages trading nominally in the red for much of the lackluster session. At the closing bell, the Dow Jones Industrials, the NASDAQ, and the S&P 500 Index were down 53, 33, and eight points, respectively. The broader small-cap Russell 2000, though, was relatively unchanged. Overall, declining issues led advancers by a modest margin on both the Big Board and the NASDAQ, and most of the arrows among the 10 major equity groups were pointing down.
Although the equity moves have been quite restrained so far this week, we have seen some notable sector rotation, the product of Wednesday’s Federal Reserve decision. The thoughts yesterday on Wall Street that the balance sheet reduction plan that the central bank will commence next month will eventually push fixed-income rates higher and the possibility of an interest-rate hike in December weighed on the higher-yielding equity groups (i.e., consumer staples, telecom, and utilities). The sentiment, though, had the opposite effect on the financial stocks, with the banking issues trading higher. The lending institutions would likely benefit from higher lending rates in the future. Elsewhere, the commodities sectors were under modest selling pressure, while the industrial stocks finished the session nominally higher. In general, it was a bearish day, but investors should note that many more stocks hit new 52-week highs than lows yesterday on Wall Street, and that, when combined with a flattish showing in the broader small-cap sector, suggests that the bulls did not take much of beating yesterday. That said…
With less than an hour to go before the commencement of trading stateside, the equity futures are indicating some continued modest selling when the U.S. stock market opens. So far today, the trading has been mixed overseas. The main indexes in Asia finished lower overnight, while major European bourses are in positive territory as trading moves into the second half of the session on the Continent. European stocks after some initial selling on North Korea jitters, recovered and are now trading higher after data showed that euro zone businesses ended the third quarter with much stronger growth than predicted. Meanwhile, investors should note that the S&P 500 Volatility Index (or VIX) is trading below 10, a level that clearly suggest that the equity market is way overbought and susceptible to some profit taking if the news were to unnerve investors, which the current situation with North Korea has the potential to do. And with earnings season still about three weeks away from beginning, there are few catalysts right now to push the market higher and may be responsible for some of the market fatigue we may be starting to see stateside. 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.
