After The Close
The stock market got off to a weak start this morning, and was unable to recover much ground during the rest of the session. At the end of the day, the Dow Jones Industrial Average was down 54 points; the broader S&P 500 Index was off nearly six points; and the NASDAQ was lower by 56 points. Meanwhile, market breadth was mixed, with advancing issues just ahead of decliners on the NYSE. Much of the weakness today was concentrated in the technology sector. Many of the healthcare names also lost ground. In contrast, the energy stocks logged solid gains, as crude oil rose to about $52 a barrel.
Meanwhile, traders received no major economic news items this morning. But the pace should pick up tomorrow, as new home sales for the month of August are due to be released. In addition, we will get a look at the consumer confidence numbers for September. Elsewhere, the monthly pending home sales report will follow on Wednesday.
Few corporations issued financial results this morning. However, after the market closes today we hear from Red Hat (RHT), a fairly large technology company. No doubt, as the month of September draws to a close, quite a few companies will be adjusting their guidance in advance of the third-quarter earnings season.
Technically, the stock market has eased a bit over the past few sessions. However, given the strides made over the past month, or so, a pause here may be a constructive development. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EDT
The major U.S. equity averages started the new week in negative territory and, after a directionless first hour of trading, are now extending those losses as we approach the midday hour on the East Coast. Some unnerving threats from North Korea about a possible military showdown with the United States within the last hour are weighing on the market. Too, our sense is that investors are taking a show me approach, especially with regard to possible forthcoming tax reforms, before they increase their exposure further to a stock market that is way overbought. Rumors are swirling that the Trump Administration will unveil some tax proposals on Wednesday, but drama between the President and the National Football League this weekend is overshadowing the possibility of some business-friendly tax reforms.
Thus, as we move toward the noon hour in New York, the mood on Wall Street has turned quite negative, with the Dow Jones Industrials, the NASDAQ, and the S&P 500 Index falling 95, 60, and nine points, respectively. Too, the S&P Mid-Cap 400 Index and the small-cap Russell 2000 are now in the red after trading modestly higher early in the session. Likewise, the advance/decline ratio has turned decisively negative on both the NYSE and the tech-heavy NASDAQ.
Speaking of the technology space, it is the biggest laggard by a country mile among the top-10 sectors. The worst performers in the category are the semiconductor and IT services stocks. We are also seeing some notable selling in the basic materials and industrial groups. The strength of the U.S. dollar is hurting the basic materials stocks, but not having the same impact on the energy commodities. The strength of oil prices, which hit a multi-month high this morning, is helping the oil issues. We are also seeing some modest buying in the consumer staples and utilities space, given their defensive qualities. With regard to health care, Senate leaders are meeting this week to come up with a plan to repeal the Affordable Care Act with the September 30th deadline to do such approaching this Saturday.
Looking ahead to the second half of the session, the bears are looking like they will be tough to beat, given the escalating geopolitical tensions between North Korea and the United States. Overall, we may continue to see some rotation out of the risky stocks and into the more defensive-oriented issues, including the aforementioned higher-yielding categories. 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.
Before The Bell
The U.S. equity market started to show some signs of fatigue last week. With the major U.S. equity indexes at or near all-time high, there are few catalysts right now to drive stocks higher, especially with earnings season still a few more weeks away from commencing. Even news from the Federal Reserve had a minimal effect on the market last week, with the averages trading in a tight band around the neutral line before and after the central bank’s midweek decision to keep the federal funds rate steady at 1.0% to 1.25% and announcement that it will begin to unwind its massive ($4.5 trillion) balance sheet next month. For the most part, the bulls held a slight upper hand heading into the Fed’s decision, but the bears turned the table a bit after the central bank announced its monetary policy decision before the buying modestly picked up on Friday. Overall, the major equity averages finished the five-day stretch about where they began the week, which was near their all-time highs.
Our sense is that investors will need to see more from either Corporate America—in the form of some forthcoming positive earnings news—or from Washington D.C.—in the shape of some corporate and individual tax reforms—to push the major indexes forward from their already lofty perches. Investors also should note the S&P 500 Volatility Index sits at a level that clearly suggests that the U.S. equity market is overbought, and if the news were to disappoint, it could prompt some selling. That, though, is being counterbalanced by solid underlying economic fundamentals, a low inflation environment, and a still accommodative Federal Reserve. This backdrop may be why the market is starting to show signs of complacency right now. We have not been seeing any volatility, which is atypical for the month of September.
On Friday, the major U.S. equity indexes turned in a mixed performance, but like the rest of the week never strayed too far from the breakeven mark. The Dow Jones Industrial Average finished the session 10 points lower, while the NASDAQ and S&P 500 Index were up four and two points, respectively. Still, there was an overall bullish undertone to trading. The broader small-cap Russell 2000 finished more than a half-percentage point higher, most of the top-10 sectors finished with up arrows, and there were a plurality of advancing issues on both the New York Stock Exchange and the NASDAQ. Among the 10 major equity groups, modest leadership came from the telecommunications, industrial, and energy sectors, while the basic materials and utilities areas gave some nominal ground on the day.
Looking to the week at hand, the investment community, with the earnings news still quiet, will be turning its attention to Washington D.C. There, the focus will be a last ditch effort on the part of Senate Republicans to repeal the Affordable Care Act and the hopes of some positive news on possible tax reform from President Trump. The Administration hinted last week that it will unveil some tax reform plans this week. We shall see what the scope of the announcement is and what effect in may have on trading. The market has rallied sharply since last November’s presidential election on hopes that it will bring some business-friendly reforms, of which tax cuts were at the heart.
It will be a fairly busy five-day stretch of news from the business beat, with reports due on new home sales, consumer confidence, durable goods orders, and personal income and spending. We will also get the final revision to the second-quarter GDP estimate. Investors also should note that a number of Federal Reserve leaders, including Chair Janet Yellen, are scheduled to speak on monetary policy, which could have an effect on trading during the final week of September.
Meantime, trading overseas has been a bit bearish to start the week. Most of the main indexes in Asia finished lower overnight, while the major European bourses are in the red as trading moves into the second half of the session on the Continent. Driving trading in the euro zone is the results of this weekend’s elections in Germany. German Chancellor Angela Merkel won a fourth term, but now must deal with a fractured Parliament, as support for the conservative right rose. The results raised the likelihood of months of coalition talks that could divert attention away from negotiations with Britain over its split from the European Union and efforts to integrate the bloc's remaining members. It also calls into question the European Central Bank’s plans to reduce monetary stimulus, a decision likely to be made at the ECB's next meeting in late October. The euro and European fixed-income yields fell on this weekend’s election outcomes.
With less than an hour to go before the commencement of trading stateside, the equity futures are indicating some mild selling when the U.S equity market opens. As noted, our sense is that the investment community will take its cue this week from the news from Capitol Hill and the forthcoming economic data. 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.
