After The Close - The markets started out strongly today as a few good earnings reports from several key companies improved sentiment. A strong report out of Dow-component Johnson & Johnson (JNJ – Free J&J Stock Report) was a particularly positive development, but mixed quarterly results were put out by Bank of America (BAC) due to lower-than-expected revenues. In all, the Dow Jones Industrial Average rose by as many as 146 points in the early part of the session, while the S&P 500 was higher by 10 points. The markets reached an overbought condition and started to trend lower, giving up most of the gains. This was partially caused by a fall in the price of Dow-component UnitedHealth Group (UNH - Free UnitedHealth Stock Report), as fears about the impact of the political backdrop on its long-term operations grew. This occurred despite solid earnings results and a good near-term forecast. The composites traded sideways for the rest of the session, but the Dow never broke below breakeven levels. However, the S&P eased into the red in the final portion of the session. All told, the Dow closed up 68 points, the S&P 500 rose by one point, and the NASDAQ climbed 24 points.
Market breadth was rather neutral, as action favored neither the advancers nor decliners by a notable margin. Financial stocks were among the best performers on the day, while REITs were among the weakest. Both of these were likely impacted by a steepening of the yield curve.
In the commodities market, oil prices rose as supply fears increased. Meantime, U.S. Treasury bond yields were higher today, as a move from the safe-haven asset occurred. The longer end of the yield curve had a larger move to the upside, which is normally good for bank earnings. The VIX Volatility Index was lower for much of the day, but spiked into positive territory in the final minutes of trading before settling near breakeven.
Looking ahead, a few key earnings reports will occur after the closing bell today, including Dow-component International Business Machines (IBM – Free IBM Stock Report). Also, several large companies are slated to release quarterly reports tomorrow morning. These will likely drive trading in the next session. Too, a few key economic reports, including the Energy Information Administration’s weekly status on crude oil inventories. Additionally, February data for inventories and the international trade deficit among other indicators are due out. Still, we think most eyes will be on earnings. - John E. Seibert III
At the time of this article’s writing, the author held positions in the following companies: BAC, JNJ.
Before The Bell - The stock market, fresh off of an earnings-induced rally of some note this past Friday, as a ringing quarterly report from JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) helped the Dow Jones Industrial Average soar by 269 points, began the latest five-day span in unimposing fashion, with the averages quickly going into a modest retreat. The market would then proceed to spend the rest of the morning in negative territory. However, the losses, which never reached 100 points in the Dow, would remain modest, for the most part, as a mixed profit picture continued to influence trading.
As to earnings, Dow component Goldman Sachs (GS – Free Goldman Sachs Stock Report) reported its results early yesterday morning and the company beat expectations on the bottom line, but trailed forecasts on the revenue side. The stock fell back in response, accounting for all of the Dow's deficit and then some on the day. Also reporting was banking behemoth Citigroup (C). That stocks did little on a reasonable report. Overall, based on a limited sampling, some 85% of companies already reporting have beaten expectations.
However, the bar had been set very low for the quarter, and thus it seems increasingly likely that earnings for the quarter will power past forecasts. The market apparently agrees, as the averages would bottom out in the morning and spend the better part of the rest of the session trying to pare those early deficits. The bulls would not wholly succeed, but the losses diminished somewhat, with the market closing just slightly lower on the session. Hopes that a trade deal can be structured with China in the near term also continues to help sentiment.
When all was said and done on the day, the Dow had fallen by a mere 28 points, after having spent the entirety of the session in the red. The S&P 500 Index, likewise in the minus column throughout, finished the day off just two points, while the NASDAQ, which also never made it back into the black would end up declining by only eight points. It was a wait-and-see day as investors held their fire in anticipation of the pending flood of corporate results and tomorrow's data on retail sales and industrial production.
Looking ahead to a new day now and following yesterday's session in which equities essentially marched in place at near record levels, we find that shares were higher in Asia overnight. In Europe, the leading bourses are spending the early trading hours in the plus column, as well. Also, Treasury note yields, off slightly yesterday, are basically flat at this hour. Finally, the U.S. equity futures are gaining ground at this hour, as additional quarterly earnings reports are awaited. – Harvey S. Katz, CFA