After The Close - Equities opened notably lower this morning, but managed to reverse course in the afternoon, ending the day on a mixed-to-positive note. The weakness earlier today was likely due to investor concerns about a protracted trade dispute between the U.S. and China, and plunging global bond yields. Of note, if left unresolved, the current situation could well put a damper on global growth. Further, investors have started to move capital into safe havens, such as fixed-income securities and gold. It is worth mentioning that many on Wall Street have been buying short-term Treasury bills, rather than longer-dated bonds, which suggests a lack of confidence in the economic outlook. By the close of the day, the Dow Jones Industrial Average was down 22 points; the broader S&P 500 Index was ahead two points; and the NASDAQ was higher by 30 points. Market breadth showed a divided session, with advancers and decliners about even on the NYSE. From a sector perspective, the financials and basic materials issues retreated, while the technology stocks and high-yielding utilities managed to advance.
Meanwhile, it was a light day for economic news. Tomorrow, should be a busier day. Specifically, we will get a look at the weekly initial jobless claims, and the monthly wholesale inventory numbers. Elsewhere, in the corporate arena, second-quarter earnings season is still in progress. Among the larger names, shares of Walt Disney (DIS – Free Disney Stock Report) moved sharply lower in price today, after the media giant delivered mixed results, due in part to difficulties integrating the recent 21st Century Fox acquisition. In contrast, shares of CVS Health (CVS) advanced after that company posted a good release and offered an upbeat outlook.
Technically, several days ago stocks pulled back considerably. It seems the market may now be starting to stabilize, although volatility remains high. Pushing the broader S&P 500 Index back above its 50-day moving average, located at the 2,930 level, will likely be a key challenge for the bulls. However, investors will likely want to see that trade relations between the U.S. and China do not erode further, and that some improvement may be possible. - 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 - A move by China to stabilize its currency against the dollar, one day after allowing it to enter free fall, helped the U.S. stock market to stabilize at the open yesterday. A day earlier, such shifts in China's currency, mainly a sharp drop in its value, had occasioned the worst performance on Wall Street for the year to date, with the Dow Jones Industrial Average plunging by 768 points. At its nadir, the Dow had been off by 950 points. But Tuesday morning was a new day, and the market opened with the Dow higher by more than 200 points.
What has brought this back-and-forth about was an escalation in the trade war between the United States and China late last week, in which the White House announced that it would be levying a 10% tariff on goods out of China beginning September 1st. After China's move to cut its currency's value. the U.S. Treasury labeled that nation a currency manipulator. For its part, China has vowed to stop purchasing U.S. farm goods. So it goes on and on, and investors are getting rattled. This standoff between the two economic powers could pressure the Federal Reserve to consider more interest rates cuts rather soon.
Regarding yesterday's action, stocks continued to press higher after this initial buying spurt, but the best gains wilted as we passed the first hour of the session, as concerns about the potential for a massive trade war overcame the expectation of a more aggressive Fed monetary approach. Still, the green arrows prevailed as the morning wound down, as there continued to be relief that China had, at least for the moment, arrested the decline in its currency. Meanwhile, even as the market rose yesterday morning, there were noted decliners, including International Flavors and Fragrances (IFF), which had an earnings miss and lowered its guidance.
The stock market then would wax and wane through the balance of the morning and into the early afternoon, with the key averages generally remaining in the plus column, but with varying degrees of strength. That would change as we moved a bit further into the afternoon, as a steady drumbeat of buying would ensue, taking the Dow back up to its best levels of the day. Relief that China came in to support its currency played a role as did words by Administration economic advisor Larry Kudlow to the effect that this country would be flexible in its trade approach.
The rally's extension, which would also help the tech-driven NASDAQ, would take in some major equity names including Apple (AAPL – Free Apple Stock Report). In fact, the gains would then accelerate as the afternoon progressed and we entered the closing phase of the trading day. In all, the major averages would rise to their daily highs just before the close, with the market regaining almost, but not quite half of what it lost on Monday. Elsewhere, Treasury note yields, which fell sharply on Monday, moved little yesterday. In all, the Dow would add 312 points; the S&P 500 would climb 37 points; and the NASDAQ would jump 107 points.
Looking ahead to a new day and following the fireworks of the first two days this week, and indeed, the past five sessions in all, we first glance over at Asia where stocks mixed in overnight trading. In Europe, meantime, the principal bourses are showing early gains. Elsewhere, oil prices are falling again and Treasury note yields are off once more. In other news, economic releases will be fairly sparse save for data on crude oil stocks, today, with tomorrow's jobless claims figures and Friday's Producer Price Index report possibly market movers. Finally, our futures, which were slightly higher earlier in the morning, now are signaling a sharp retreat at the open, following a notable reversal in global bond yields. - Harvey S. Katz, CFA