After The Close - After three consecutive weaker trading sessions on Wall Street, the bulls showed some life today. As noted here earlier, there was not much in the way of economic or earnings news to whet the appetite of investors, so we would chalk up today’s performance as some selective bargain hunting. However, we would stop short of characterizing today’s performance as the typical Monday/Tuesday reversal because of the rather directionless day for the Dow Jones Industrial Average, which bounced around the neutral line for much of the session before finishing modestly higher. The advances for S&P 500 Index and, even more so, the NASDAQ were a bit more formidable, but they also gave back some of their earlier gains. The same could be said for the small-cap Russell 2000 and the S&P Mid-Cap 400 Index. Overall, advancing issues led decliners by a healthy margin on both the Big Board and the NASDAQ, which was a welcome development after three difficult trading sessions.
From a sector perspective, nearly all of the top-10 groups finished in the black, with the only exception being the healthcare stocks. Healthcare was once again hurt by a poor performance from the biotech issues. There also was selective weakness among the financial stocks ahead of a vote shortly by federal regulators on stricter lending rules for the big banks. However, leadership came from the basic materials and technology sectors, with the performance of the latter helping the NASDAQ recover partially after three notable setbacks. It also was a good day to be long steel, coal, and oil and gas exploration stocks.
As noted, it was a rather quiet day on the business front, which will be the case for much of the week before Friday’s reports on consumer sentiment and producer prices. However, we did learn that the sentiment among small businesses improved in March. Specifically, the National Federation of Independent Business’ small-business index rose two points last month, to 93.4. This is an encouraging sign for the economy—and likely played a part in the small-cap market gains today.
Meantime, ahead of tomorrow’s release of the minutes from the latest Federal Open Market Committee (FOMC) meeting, Minneapolis Federal Reserve President Narayana Kocherlakota said that the central bank is not doing everything that it could do to promote faster job growth. It should be noted, though, that Mr. Kocherlakota was the only dissenting vote to reduce the monthly asset purchases by $10 billion, to $55 billion. Going forward, the prevailing sentiment is that the Federal Reserve will continue to wind down its monthly bond buying.
Elsewhere, the overseas markets, particularly those on the Continent, did not fare well today. Weighing on the European bourses were renewed tensions in the Ukraine. Specifically, Russia’s foreign ministry warned that any use of force by Ukrainian authorities to dislodge pro-Kremlin separatists who have seized control of government buildings in three eastern Ukraine cities could plunge the nation into a civil war. This commentary roiled the European equity markets and also weighed some on trading on these shores. The escalating tensions also pushed worldwide oil prices higher. Crude oil futures rose sharply on the New York Mercantile Exchange, settling at a two-week high.
Turning back to the homeland, investors should note that this week will bring the most Initial public offerings (14) debuts since November 2007. Despite the recent market hiccup, the heavy dose of new entrants into the equity market in 2014 may well be a sign of the underlying strength of the U.S. equity market. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:30 PM EDT - The U.S. stock market got off to a tentative start this morning, but is now moving notably higher. This is in keeping with the Tuesday reversals that we have noted here at Value Line. At a little past noon in New York, the Dow Jones Industrial Average is up 41 points; the broader S&P 500 Index is ahead seven points; and the NASDAQ is tacking on 35 points. Market breadth suggests that there is some support for equities today, as gaining stocks are leading decliners by roughly two to one on the NYSE. Strength can be found throughout most of the market sectors. Specifically, there is some leadership in the technology group, with advances in the software and computer makers. Strength in this area is encouraging, given the recent weakness here. Some of the momentum names that encountered selling over the past few days have also stabilized. Moreover, the basic materials issues are up today, thanks to gains in the coal issues. In contrast, the healthcare sector is underperforming, as traders continue to sell the biotechnology names.
Technically, the market hit some resistance when it tested new high ground a few days ago. The selloff that ensued since has put the S&P 500 Index back near its 50-day moving average, located at roughly 1,840. It should also be noted that the broad index has also fallen back into the trading range that it had been locked in during the month of March. From here, it remains to be seen if the market can sustain a move higher. Much will depend on the quality of the first-quarter earnings reports soon to be released.
It was a quiet day for economic reports. However, tomorrow things pick up a bit. Wholesale inventories for the month of February are due out. In addition, we get a look at the minutes from the FOMC’s March meeting.
Traders did not receive much corporate news this morning, but things are about to pick up. Specifically, basic materials giant, and erstwhile-Dow component, Alcoa (AA) is set to release its figures after the close today. Typically, this has marked the unofficial start of the earnings season. So stay tuned. - Adam Rosner
At the time of this article’s writing, the author had positions in Alcoa (AA).
Stocks to Watch from The Survey – First-quarter earnings season gets started after the market closes today, when aluminum producer Alcoa (AA) is scheduled to release its March-period financials. Corporate news is fairly light, otherwise, although there are a few stocks that will likely see active trading today. On the M&A front, shares of Ctrip.com (CTRP) are up moderately in the premarket, after news reports surfaced that the China-based online travel agency may be in merger talks with industry peer Baidu, Inc. (BIDU). Staying in Asia, IMAX Corp. (IMAX) stock is also moving higher ahead of the bell, after the movie-screen operator agreed to sell a 20% stake in its China business for $80 million. The move should accelerate the expansion of IMAX theaters in that nation. Finally, Nokia (NOK) shares are indicating a higher opening this morning, after regulators in China approved the mobile phone developer’s plan to sell its Devices and Services unit to software giant Microsoft (MSFT – Free Microsoft Stock Report). – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market, which sold off sharply late last week, on concerns about valuations and the pending start of first-quarter earnings season, faltered anew yesterday, with the setback, which had been concentrated in the NASDAQ and the small- and mid-cap sector heretofore, suddenly becoming much more inclusive.
In fact, after several brief, and rather half-hearted, attempts to pare the session's worst losses, the Dow Jones Industrial Average wound up falling by 167 points on the day, which was a slightly larger setback than had been suffered on Friday. This Dow reversal, which left that blue-chip composite at its session's low, attests to the broadening nature of the latest decline. Earlier, the focus had been on the more volatile sectors; yesterday, the losses were across the board and rather steep, as a glimpse at the performance of many mutual funds would attest.
Of note, we also saw sizable losses in the Standard and Poor's Mid-Cap 400 (off 1.7%), in the small-cap Russell 2000 (down 1.5%), and, again, in the NASDAQ, which was lower by 48 points, or 1.2%. On Friday, the NASDAQ had tumbled by 110 points, or some 2.5%. Once again, it was the fear of excessive valuations, concerns ahead of the pending start of first-quarter earnings season, and the absence of economic news of note that, we think, led to the latest setback. This is an atypically sparse news week, as reports will be limited to weekly jobless claims on Thursday and producer prices and consumer sentiment on Friday. We also will get the minutes from the most recent Federal Reserve FOMC meeting this Wednesday afternoon. That can, albeit infrequently, prove to be a market-moving issuance.
As to earnings season, the pending parade will start this afternoon when aluminum making giant and erstwhile Dow-30 component Alcoa (AA) kicks off the quarterly event when it issues its latest results. Expectations are that the large light metals concern will report first-quarter net of $0.05 a share, or about half of the year-earlier bottom-line tally. Ahead of this report, the stock eased modestly yesterday, although the issue has been among the market's better performers in recent months. Interestingly, it has done better since its removal from the Dow-30 than the stocks that replaced it and two other erstwhile Dow members.
As to the market, a correction, or a setback of more than 10% in the principal averages, is long overdue and might even prove to be constructive. At this time, we are down about 6.7% in the tech-laden NASDAQ and are off 6.3% in the Russell 2000. Thus, with regard to these more speculative composites, we are about two-thirds of the way toward a correction. We are nowhere near such a pullback in either the Dow or the Standard and Poor's 500 Index, where the respective declines of just 2.3% and 2.7% have been recorded. Our sense is that the performance of those notably less volatile and risky composites will need to be more closely watched going forward to see if the recent group rotation out of more risky assets will now continue, or whether we will revert to earlier patterns in which the quest for growth was stressed.
Meanwhile, a new day now dawns, and thus far the indications are not all that positive, as we saw notable declines in Asia overnight and are seeing similar sized setbacks on the Continent this morning. But over here, following the back-to-back sharp declines in our markets, the equity futures are now showing slight gains with less than an hour to go before the start of the new trading day, which represents a modest comeback from some earlier selling in the futures this morning. Thus, we could get a Monday-Tuesday reversal today. However, we caution that after such a sharp selloff, an exaggerated level of volatility is almost a given, suggesting that we could experience a succession of up and down moves within today's session. Where we close is an open question, of course, although we do note that another selloff could be the prelude to a longer market setback, or perhaps a correction.
Finally, we would keep a wary eye today on the Internet, biotech, and technology issues. That is where the brunt of the selling has taken place, overall. It should be noted that the three-day decline in the NASDAQ is the biggest, in percentages, since November of 2011. At the minimum, there seems to be a reassessment of the merits of risk, at this time. Stay tuned to see where this all goes. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.