After The Close
The stock market started in the red today, as global growth worries were at the forefront. Indeed, some lackluster data about manufacturing in Germany hurt traders' sentiment, causing stocks to fall a bit. The Dow Jones Industrial Average was lower by as many as 104 points in the early session, while the other indices were lower in tandem. However, losses receded throughout the morning, and the markets moved into the green. This trend higher continued throughout the early afternoon and the Dow was higher by as many as 67 points at its apex. The markets, unfortunately, tapered off in the final portion of the session. All told, the Dow was higher by 15 points, while the S&P 500 finished flat.
Market breadth was slightly positive, as advancers outpaced decliners by about a 1.3-to-1.0 ratio. Consumer staples stocks were among the best performers on the day, while healthcare stocks were among the weakest.
In commodity news, oil prices were higher today, as some contradictory stories were reported about supply in Saudi Arabia. One report stated that it would take much longer than expected for the oil from Saudi Arabia to reach full production. However, another report noted that full productivity could be achieved within a week. These netted to a slight increase in the commodity price. Meantime, U.S. Treasury bond yields were lower across the board, as a move toward the safe-haven asset occurred. Longer-term yields fell more than those with shorter terms, which flattened the yield curve a bit, which usually is a negative for banks' earnings. The VIX Volatility Index was down today, as demand for options protection fell slightly. Also, gold and silver were much higher today.
Looking ahead, a few economic reports are due for tomorrow; these include consumer confidence for September. Too, a few key earnings reports are on the docket, including Dow-component NIKE, Inc. (NKE – Free NIKE Stock Report) after the bell tomorrow. Overall, we think that trading will be affected by any news regarding 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
The major U.S. equity indexes finished in the red last week after bouncing around the neutral line for much of the five-day stretch, as investors digested a number of market-moving reports. Last week started out on a down note, with investors unnerved by an attack on Saudi Arabia oil processors, which lowered that country’s crude output. The market then stabilized during the middle of the week, helped by reports that Saudi production would resume faster than expected, positive data on the U.S. housing market, some walking back on tariffs on certain goods from China, and an interest-rate cut of 25 basis points by the Federal Reserve. Then on the final day of trading, volatility spiked, with early session buying giving way to a sharp reversal and a lower closing on trade fears, news of increased sanctions against Iran by the United States, and a drop in Treasury yields. All three variables may be very much in play again this week.
On Friday, the market started nicely to the upside, but as the session progressed the volatility picked up and there was some notable selling in the final half-hour of the session, on a heavy volume day for the market. The late-day selloff was on trade fears. Traders were roiled by reports that trade officials from China (not at the top level) had cancelled their scheduled visit to some Montana farms. The decision was taken as a sign that the ongoing trade negotiations may have hit a bit of a snag. That, along with President Trump saying that he was not interested in doing a partial trade deal with China, unnerved investors. At the closing bell, the Dow Jones Industrial Average, the tech-heavy NASDAQ, and the broader S&P 500 Index were down 160, 65, and 15 points, respectively. The Friday selloff contributed to weekly declines of 1.0%, 0.7%, and 0.5% for the aforementioned equity averages. For the five-day stretch, the notable losers in the S&P 500 Index were the stocks of FedEx (FDX), Macy’s (M), and The Gap Stores (GPS).
In our opinion, the biggest story line from last week was the pickup in volatility. The daily twists and turns of the trade war between the United States and China and the escalating geopolitical tensions in the Middle East seem to be the events that are now driving the direction of trading these days, as we saw late on Friday afternoon. With third-quarter earnings season still more than a fortnight from commencing, our sense is that the aforementioned events will continue to be at the forefront of investors’ minds. This morning, reports surfaced that Iran was plotting another attack on Saudi Arabia oil processors, which may only increase the geopolitical tensions and ultimately the volatility in the stock market.
Meantime, we will get some more news on the U.S. economy this week. The headline reports include the latest data on consumer confidence (tomorrow), a revision to second-quarter GDP (Thursday), and the latest figures on durable goods orders (Friday). Investors will be interested in the latest reading on consumer confidence from the Conference Board. The index slipped last month despite a pickup in both housing and retail sales.
With less than an hour to go before the start of the new trading week stateside, the equity futures are presaging a slightly lower opening for the U.S. stock market. So far overseas, the mood has been dour. Indeed, the main indexes in China finished lower overnight (Japan’s Nikkei was closed), while the major European bourses are in negative territory, particularly those of Germany and France, as trading moves into the back half of the session on the Continent. Pushing equities lower in Europe were data this morning showing that manufacturing sentiment in the euro zone fell in September, to the worst level in almost seven years. Specifically, the euro zone PMI declined to an 83-month of 45.6, down from 47 in August, and manufacturing activity in Germany, the confederation’s largest economy, tumbled to 41.4 in September, from 43.5, the worst reading in more than a decade. This economic news clearly rattled investors across the Atlantic. 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.
