After The Close - Stocks fell, but finished off their session lows, to close the week as financial instability overseas raised anxieties about the disruption spreading to these shores. At the end of the day, the Dow Jones Industrial Average dropped 196 points; the NASDAQ declined 53 points; and the S&P 500 slipped 20 points. The broader market reflected the weakness in the major averages, as the number of declining issues outpaced gainers by nearly two to one on the New York Stock Exchange.
Turkey was at the center of the storm today, as its currency fell sharply and its bond yields skyrocketed. The Turkish lira had already faltered badly in recent months on fears that high inflation would not be properly addressed by monetary policy. Making the situation worse over the last day or so was the failure of talks between the United States and Turkey over the release of a political prisoner. That apparently led President Trump to initiate a move to double tariffs on aluminum and steel from Turkey.
While Turkey in and of itself only represents a small portion of the global economy, the concern is that its difficulties are becoming symptomatic of other emerging markets. The strong, and rising, U.S. dollar is raising the specter of past unsettling currency moves. Deep problems sometimes develop as dollar-denominated debt becomes harder to repay.
The troubles in Turkey bear watching. Conditions could settle down, and in that case today’s selloff will prove an overreaction. But the situation is fluid, and there could be more bumps in the road.
As to be expected, the financial sector was the hardest hit in the session just ended, as fears that indirect exposure to Turkey through the banking system might become problematic.
Elsewhere, government bond yields fell for the third consecutive day, with prices rising, as investors fled to the perceived safe haven. The yield on the benchmark 10-year Treasury note fell to 2.86%, from 2.94% yesterday. The yield on the 10-year T-note last week reached 3.00% for the first time since June.
Crude oil prices also bucked the trend, rising about $0.85 a barrel in New York trading, to around $67.65, partly on word that the International Energy Agency sees an uptick in demand next year.
Next week, several retailers will begin to report earnings. Wall Street will be keen to see if consumers are keeping up their increased spending patterns. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Another day, another attempt by the S&P 500 and the NASDAQ to push above all-time highs. On point, after solid performances on Monday and Tuesday and a slight dip on Wednesday, the market opened with a slight upward bias in trading yesterday. To be sure, the positive numbers were modest, with the Dow Jones Industrial Average actually dipping nominally. But the other indexes, led by the tech-laden NASDAQ and the smaller-cap S&P 400 and the Russell 2000 advanced nicely to start the session. With the S&P just a half a percentage point off its best levels ever at the start of trading, it just seemed a matter of time until a high was reached.
Leading the way were some tech names, including Apple (AAPL – Free Apple Stock Report), which jumped by more than $2.00 a share early. Meantime, the initial dip in the Dow would be short-lived, as that composite would enter the plus column, albeit gingerly, as the first hour ended. As before, the strength in the market was largely a function of the better-than-expected earnings for the latest quarter. Conversely, the hesitancy by Wall Street, at times, can be explained by the escalating trade tensions with China. That nation is seemingly bent on not giving into the United States just yet.
Meanwhile, although global trade relations and earnings continue to grab the headlines, there also is the economy, which had been performing quite well in recent months. Still, there has been some near-term choppiness in recent weeks, with growth slowing in employment, manufacturing, and non-manufacturing. And this morning, Washington weighed in with its latest data on producer, or wholesale, price inflation. Here, the news was quite supportive, as prices were unchanged in July, following increases of 0.5% and 0.3%, respectively, in May and June. Backing out food and energy, to get the so-called core PPI, we see a 0.3% gain.
This report, though, did little to move the needle, as the market continued to look mainly at earnings, tariffs, and trade, with this good news-bad news sequence producing little overall movement, save for a strong afternoon bounce in the tech-heavy NASDAQ, which bounded ahead by some 35 points as we moved inside the final two hours of trading. All told, the market seems to be paying little attention to the economy at this time, with the employment report already out and the revision of second-quarter GDP still a couple of weeks away.
Stocks would then continue to find support as the afternoon moved along, with the NASDAQ, the S&P Mid-Cap 400, and the Russell 2000 all moving up a bit further, while the Dow inched closer to the breakeven line, as we moved into the final hour of trading. But this recovery, which suggested, for a time, that all of the indexes would wind up in the green, wouldn't continue. In fact, there was a late selloff of some note in the waning minutes of the session that carried the Dow Industrials to a closing loss of 75 points. The S&P 500, too, inched lower, but the NASDAQ retained a small gain.
Breaking things down, most of the 10 equity sectors ended lower on the day, while losing stocks would hold a nominal lead over gaining issues on the Big Board. Looking ahead to a new day now, we see that stocks in Asia were lower overnight, while in Europe, the major bourses are trading downward, as well. Also, oil prices are fairly flat and the yield on the 10-year Treasury note, which eased off to 2.94% yesterday, is now at 2.90%. Finally, the U.S. equity futures are now suggesting a weaker opening when trading resumes later this morning. – Harvey S. Katz, CFA