After The Close - The stock market traded lower this morning, but managed to partially pare its losses in the afternoon. At the end of the session, the Dow Jones Industrial Average was down 28 points; the S&P 500 Index was off almost two points; and the NASDAQ was lower by eight points. Market breadth showed a divided session, with decliners outpacing advancers by a narrow margin on the NYSE. From a sector perspective, the financial issues led the market lower today, while the consumer names managed to make some progress.
Meanwhile, it was a light day for economic news. However, the Empire State Manufacturing Index registered a reading of 10.1 for the month of April. This showing, which was better than the March figure, exceeded analyst expectations. Tomorrow, we will get a look at latest monthly industrial production numbers.
In the corporate arena, the first-quarter earnings season is just starting up. The major banks and financials are in the process of reporting their numbers. At the end of last week, we received an upbeat release from JPMorgan Chase (JPM – Free JPMorgan Stock Report) and that helped improve market sentiment. However, today’s news was not as encouraging. Specifically, shares of Goldman Sachs (GS – Free Goldman Stock Report) weighed on the market for much of the session today. The investment bank delivered softer-than-expected numbers, and some investors were looking for a more encouraging outlook. Further, shares of Citigroup (C) were down, on a mixed on report.
Technically, stocks have performed quite well this year. In fact, the S&P 500 Index is not too far from the highs hit late in 2018. Looking ahead, much will depend on the quality of the corporate earnings reports that will be released over the next few weeks. Also, the Trump Administration is working on reaching a trade agreement with China, and progress on that front would likely be a plus for investors. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - At the midpoint of April, the U.S. equity market is again on course to make it another winning month in 2019, and extend the rally that has now stretched more than three months and has retraced the losses during the final quarter of 2018, and then some. Since the start of the year, investors have been emboldened by a highly accommodative Federal Reserve, mild readings on inflation, including last week’s pricing data, and encouraging signs that a deal on trade between the United States and China may be on the horizon. Then this month, a positive report on job creation (nonfarm payrolls increased by nearly 200,000 positions in March) and a strong start to first-quarter earnings season, with banking giant JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) reporting record profits on Friday, has prompted further buying on Wall Street. Last week, the Dow Jones Industrial Average and the small-cap Russell 2000 turned in relatively flat performances, while the NASDAQ and the broader S&P 500 Index advanced 0.6% and 0.3%, respectively.
On Friday, it was another notable session for the bulls. The major equity indexes got off to a fast start and never looked back. As noted above, the primary catalyst was an encouraging start to the first-quarter earnings season. Banking behemoth JPMorgan Chase reported March-quarter earnings of $2.65 a share, beating the Wall Street consensus estimate by $0.30 per share. The JPMorgan report gave a big boost to the Dow 30 after a poor earlier week performance by Boeing (BA – Free Boeing Stock Report) stock weighed some on the index of 30 bellwether companies. Also helping the major averages on the week’s final trading day was data showing China’s exports in March were up sharply versus the year before, suggesting that the recent slowdown in the world’s second-largest economy may have turned the corner. Meanwhile, although industrial output in the euro zone continues to slump, February’s readings were not as bad as some had feared. The better-than-expected overseas news, along with the aforementioned positive start to earnings season stateside and a strong reaction to the announcement from Walt Disney (DIS – Free Walt Disney Stock Report) that the entertainment giant was offering a new video streaming service produced respective gains of 269, 37, 1nd 19 points for the Dow 30, the NASDAQ Composite, and the S&P 500 Index. The S&P 500 established a new high for 2019 by climbing to 2,910.54 in early trading, but it didn't do much after that, pulling back slightly, but still finishing north of the 2,900 mark. Overall, advancing issues led decliners by nearly two to one on the Big Board and nearly all of the 10 major equity groups finished in positive territory. The only laggard was the healthcare sector, while the leadership came from the financial, technology, industrial, and consumer discretionary groups. The healthcare stocks were hurt by the unveiling of U.S. Senator and 2020 Presidential candidate Bernie Sanders’ “Medicare For All” plan.
Turning to the week at hand, the focus of the investment community will be on first-quarter earnings season, which will begin to heat up. This week, 46 members of the S&P 500 will report results, followed by 134 next week. Our sense is that the big key to whether the earnings reports give a further boost to equities will be the guidance provided, with investors looking to see if the companies expect earnings growth to reaccelerate later in the year. Such may be needed to continue a rally on Wall Street where higher P/E multiples are the norm following the Federal Reserve’s dovish monetary policy remarks earlier this year. The CBOE Volatility Index (or VIX) sits at a level (12.31) that suggests the market is overbought. Thus any big misses on the earnings front could potentially hurt the performance of those companies’ stocks.
The investment community also will be keeping tabs on the business beat, with an eye on Thursday’s data on March retail sales. The consensus is that the report from the Commerce Department will show retail sales rose nearly 1% last month, following an unexpected decline of 0.2% in February. Also this week, we will get reports on industrial production, housing starts, and the trade gap. The Federal Reserve’s Beige Book summation of economic conditions, which is used by the central bank in formulating monetary policy, will be issued on Wednesday afternoon at 2:00 P.M. (EDT).
With less than an hour to go before the start of trading stateside, the equity futures are pointing to a rather flat start for the U.S. stock market. As noted, we think that earnings news, which will include more reports from the banking sector this morning, will play a big role in the market’s performance during this abbreviated trading week. (Note that the U.S. equity market will be closed on Friday for Good Friday.) So far overseas, the main indexes in Asia finished mixed overnight ahead of this week’s release of first-quarter GDP growth for China, while the major European bourses are slightly higher as trading moves into the second half of the session on the Continent. Stay tuned. – William G. Ferguson