After The Close - The major U.S. indexes began the week on a modestly high note, with advancing stocks outnumbering declining issues by a 1.5-to-1.0 margin. Leading the pack was the NASDAQ. The tech-centric composite was supported by a strong day for social media-turned-digital advertising powerhouse Facebook (FB), which gained roughly 3% in market valuation at its midday peak. The Dow Jones Industrial Average was more mixed in nature, however, as International Business Machines (IBM – Free IBM Stock Report) shed some of its late-week gains. Elsewhere, strength in energy and telecommunication trading helped the S&P 500 post a respectable advance.
Indeed, investors are ostensibly pleased by the ongoing corporate earnings season. The late-2017 tax cuts are paying off on the bottom line while, generally speaking, top-line performances have been stronger than expected.
Impressive economic data are helping to brighten the picture here, helping to offset the uncertain backdrop of the geopolitical sphere. It was a relatively slow day on the trade development front, which we believe opened up some room for the bulls to make their presence felt during the week’s opening session.
Meanwhile, the per-barrel price of U.S. crude approached $69 amid encouraging reports related to Saudi Arabian output. The loosened tenor of the successful drilling accord by OPEC (plus Russia) has contributed to some volatility in the commodity market over the past several months. But given recent reports from the Middle East, it seems as though the worst fears about an impending glut in global inventory levels appear to be allayed, for now.
Overall, we expect strong earnings to compete with global trade updates for control of this week’s trading. So while the sentiment stemming from the latter is likely to remain optimistic, the unpredictable nature of the news cycle of the latter (particularly as it pertains to U.S.-China relations) will probably present the opportunity for some profit taking in the days ahead. As always, stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - A benign employment report, no new headwinds on the global trade front, and a better-than-3% gain in shares of long-depressed International Business Machines (IBM – Free International Business Machines Stock Report) combined to send the Dow Jones Industrial Average and the S&P 500 higher Friday morning. Indeed, as we passed the noon hour in New York, the blue chip composite was ahead by some 90 points and the S&P 500 was better by seven points. Modest losses, however, were being tallied by the NASDAQ, the S&P Mid-Cap 400, and the small-cap Russell 2000. These composites had been among the strongest performers over the past week some profit taking was only natural.
Breaking these events and some others down on this last trading day of the week, the rise in IBM came about on reports that an activist investor was about to take a position in that depressed issue. The tech giant saw its stock jump by some 3% on this news. In other goings on, while there were no new trade developments, there were indications that high level talks between the United States and China might be evolving. Even so, China said Friday that it will slap tariffs on $60 billion in American-made goods, with charges ranging from 5% to 25%.
And on the trade front, the Commerce Department reported that our trade deficit jumped 7.4% in June, as the tariff rift continued, especially with China. All told, the deficit from $43.2 billion in May to $46.3 billion in June. That rise in the final month of the second quarter, all things being equal, could cut into the earlier reported 4.1% gain in second-quarter GDP. Also, the Institute for Supply Management reported that its index of non-manufacturing activity slowed its rate of gain in July, as that survey registered a reading of 55.7%, down from 59.1% in June. Still, this index held above the 50.0% level that denotes a growing services sector.
Thus, there was a lot going on, with the large caps, especially those domiciled In the Dow-30 doing well, in part, since there were no new headwinds to report in the tariff area. Meantime, among individual groups participating in the market's irregular rise, we saw strength in the consumer non-cyclical category, in part because food processing giant Kraft Heinz (KHC) reported a larger quarter profit gain than forecast. Its shares jumped more than 8% in mid-afternoon. There also was speculation that the company might be interested IN rival food company Campbell Soup (CPB). Shares in the latter rose, as well.
The Dow's run-up would gain additional momentum as the afternoon wound down, pushing well past the 100-point mark, on overall optimism, in part that the United States and China will come to some agreement at some point on trade. As the final bell sounded, the Dow was at its peak for the session, with a closing gain of 136 points, led higher by IBM. Of note as well, the S&P 500 added 13 points, while the NASDAQ, on a late push, added nine points. Only the Russell 2000 fell. Meantime, nine of the ten leading equity groups gained on the session, led by basic materials and the aforementioned consumer noncyclical groups.
Now, a new week begins, and looking across the sea to Asia, we see that shares on that continent were generally lower in overnight trading, while in Europe, the early read is somewhat more positive. Also, Treasury note yields, which eased on Friday, perhaps on some relief that wage growth was modest, are now trending somewhat lower as thoughts turn to trade in early trading, while oil prices are easing somewhat. Finally, U.S. futures are pointing to a modestly lower market opening later this morning. With earnings season starting to wind down, the focus now will logically turn back to trade to an even greater degree, in our view. – Harvey S. Katz, CFA