After The Close - The large-cap U.S. indexes traded mostly lower today, cutting into the gains registered on Tuesday. Though the NASDAQ 100 (and, to a lesser degree, the S&P 500) showed signs of an upturn at several points, geopolitical uncertainty worked to drive the averages near session lows in the afternoon. The Dow Jones Industrial Average was the worst faring major grouping, shedding more than 200 points during the session. Underscoring the growingly negative tone to today’s trading, the small-cap Russell 2000 slipped closer to its breakeven line after spending most of the day well into positive territory, while market breadth favored neither advancing nor declining issues.
Though fears of a trade war were somewhat alleviated yesterday, nine out of ten business sectors still shed aggregate value today. This was spurred primarily by a tweet from President Trump, which indicated that potential military intervention in Syria was imminent. This destabilized the bulls and opened up an opportunity for investors to collect on recent profits. We do not expect this storyline to hold much influence over trading in the coming days as investors turn their focus to quarterly earnings.
In the afternoon, the Federal Reserve released minutes from its most recent meeting on monetary policy. The transcript revealed that each of the central bank’s members foresee a strengthening economy and rising inflation in the next several months. However, with a lingering trade war on the horizon, downside risks to the expansion exist, according to some in the group. Whether the Fed continues to employ an accommodative policy in the coming few quarters remains to be seen, though most analysts expect additional interest-rate hikes in June and September. A late-year increase in December still considered something of a longshot.
One pocket of particular strength today was the oil trade. Indeed, domestic crude oil rose to its highest per-barrel valuation since September 2014 on the heels of ramped up tensions abroad. Specifically, President Trump’s morning tweet stoked expectations for more unrest in the Middle East. This would in turn disrupt oil supplies, which boosted the prospects for U.S. crude. Later in the day, upon news of Saudi Arabia intercepting ballistic missiles from rival Yemen, oil added onto already impressive daily gains.
Looking ahead, in addition to developments from Washington, earnings will take center stage beginning tomorrow. BlackRock (BLK) and Delta Airlines (DAL) will kick things off Thursday, with a slew of financial giants weighing in on Friday. Analysts have high hopes for this round of quarterly reports, so we anticipate the bulls will attempt a strong finish to what has been a volatile (though ultimately upbeat) week of trading, so far. – Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell - Following up on Monday's roaring start, but late-meltdown, stocks began yesterday moving strongly to the upside once again. But unlike the day before when early optimism about a lessening in trade tensions was countered late in the day by political headwinds as the FBI broke into the offices of the President's personal attorney, Michael Cohen, the latest session saw continued buying all day long. Once again, it was hopes on international trade, with some calming words from China's President Xi, allaying worries about an imminent trade war. In essence, that nation's leader pledged to ease tariffs on an array of goods.
So, stocks soared at the open, with the Dow Jones Industrial Average, which on Monday had given back much of an early 440-point advance, jumping by just over 500 points in the first 90 minutes. The other large- and small-cap indexes did almost as well climbing close to 2%, or a bit shy of the Dow's better-than-2% rise. Meanwhile, Wall Street managed to breathe a sigh of relief after China's President said that he would look to open his country's markets thereby lessening trade war fears. Leading the way higher for the blue chips was Boeing (BA – Free Boeing Stock Report), which would be a beneficiary of any reduction in trade restrictions. Auto stocks also were strong.
Meanwhile, the market's vigorous advance would continue into the start of the lunch hour, with the Dow's advance continuing to hold above 500 points for much of the rest of the morning. Of course, things go slowly in China and there could well be changes and some backtracking before a definitive policy is adopted. However, for one day, at least, the bulls were largely triumphant. The latest upsurge also may mean that there was something of an overreaction on the political side on Monday afternoon. Either way, the rally was clearly appreciated by the bulls, who have had something of an uphill fight since early February.
But the rally would then stub its toe for a time as we moved into the afternoon, with the aforementioned more than 500-point Dow gain cut in half briefly before stocks regained their footing later on during the lunch hour, with the Dow soon crossing the 400-point threshold once again. From there, that index stayed range-bound for the rest of the afternoon, holding increases of between 400 and 500 points, for the most part, and ending matters ahead by 429 points, while the NASDAQ, boosted by some healthy gains in technology, pushed past the Dow, gaining more than 2% at the close. All told, it was a strong answer to Monday's late selloff.
As to other news on this most bullish session, the Labor Department started the day off by reporting that the Producer Price Index jumped by 0.3% in March. That was a bit higher than forecast, and followed increases of 0.4% and 0.2% in January and February, respectively. In the latest month, a sizable gain in food prices helped to offset a lower tab in energy. Final demand, less food and energy saw a gain of 0.4% last month, the same uptick as in January and February. Thus, inflation looks to be ticking up somewhat, but apparently not yet enough to rattle investors, given the large gains enjoyed yesterday.
Looking out at a new day that will, among other things, feature the release of the Fed minutes from the last FOMC meeting, we see that stocks in Asia followed up yesterday's fireworks in New York by posting mixed results in overnight trading. In Europe, meantime, the major bourses are currently tallying losses. Moreover oil, a winner yesterday, is edging higher thus far this morning, and yields on the 10-year Treasury note, which ended matters at 2.80% yesterday, are now at 279%. Finally, ahead of the Fed minutes, U.S. equity futures are suggesting a weaker start to the new trading day on increasing turmoil in Washington. – Harvey S. Katz, CFA