After The Close - The stock market started out strongly today, as trader sentiment improved due to a few factors. These include better-than-expected trade data out of China, which showed an expansion in exports as opposed to a slight contraction. This data showed that global trade expectations had been dragged down too low by recent events. The Dow Jones Industrial Average started to move higher, while the other indices followed suit. Too, this improved sentiment benefited U.S. Treasury bond yields, which started to move higher from the outset. These trends continued well into the early afternoon, and the Dow was up by nearly 350 points at one time. Still, the markets started to level off near that level, trading in a sideways action for much of the rest of the day. Then, the markets broke a little bit higher in the final portion of trading before closing around their peak levels. All told, the Dow was ahead by 371 points, the S&P 500 increased 54 points, and the NASDAQ was up by 176 points.
Additionally, market breadth was very positive, as advancers outpaced decliners by a 4.4-to-1.0 ratio. Technology stocks were among the best performers, while consumer staples and utilities were among the weakest, though only on a relative basis. These sectors were hurt by higher interest rates.
In commodity news, oil prices rebounded nicely on the day, as expectations rose for worldwide demand. Meantime, U.S. Treasury bond yields were almost all higher, with the notable exception of the three-month rate. This is generally positive for financials earnings, which tend to borrow short and lend long. The VIX Volatility Index was lower today, as demand for options protection fell.
Looking ahead, tomorrow will see the Produce Price Index released. This should give important inflationary data that the Fed may use when determining interest-rate policy at its next meeting in mid-September. Too, earnings season continues to taper off, but a few companies are slated to report quarterly results. Overall, we think that trading tomorrow will be affected by the increasing trade tensions worldwide and any moves in interest-rate expectations. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Volatility is back on Wall Street and in a very big way, and that is clearly unsettling investors. On point, after an escalating trade war featuring the announcement last week of further U.S. tariffs on China's produced goods and a sudden sharp drop in the value of that nation's currency on Monday had combined to send stocks reeling, there was a notable comeback in the market's on Tuesday, with the indexes making up about half of the prior day's losses. Then early yesterday, after pre-market indications had pointed to a modest further advance at the open, the futures suddenly turned sharply lower on a plunge in bond yields globally.
The U.S. stock market, in fact, would also plunge at the open, with the Dow Jones Industrial Average falling by close to 600 points within minutes after trading began, and even though there was some subsequent buying in the composite, the blue chip index still would be off by close to 400 points after a half hour's trading. Massive losses were being sustained up and down the list, with some unwelcome quarterly results also thrown in, such as in the case of Walt Disney (DIS – Free Walt Disney Stock Report), which saw its stock lose more than $8 in early action. On the other hand, weight loss icon Weight Watchers (WW) stock would surge in price.
The market's bulls then would again stiffen their resolve as has often been the case this year, with the Dow's losses, for example, easing to fewer than 250 points as the morning wound down, while the NASDAQ's deficit, once more than 125 points, almost disappearing at one point. Meanwhile, as global bond yields tumbled and the yield on the 10-year U.S. Treasury note fell to 1.62%, its lowest level since 2016, gold prices are soaring, up more than 2%, as investors move to so-called safe-haven assets. Silver, too, was surging gaining almost 4%, while oil prices were skidding, off more than 5% on global growth concerns.
The market then stumbled into the noon hour, with the Dow again down more than 350 points. This worrisome and unrelenting volatility seemed as though it would continue all day at that point. And, indeed, it did, but the changes were mainly associated with a strong mid-session comeback that would again see the NASDAQ erase its losses and, this time, go into the green by 2:00 PM (EDT). The Dow's loss, once almost 600 points and still some 350 points as the afternoon began was reduced to fewer than 100 points at that time. It was an impressive comeback to that point.
The market then stayed in a mixed pattern for a while, with the Dow and S&P 500 both still lower while the NASDAQ held onto small gains. What may have sparked the renewed equity buying was the belief that the Federal Reserve, seeing the global interest rate panic, would almost certainly reduce the federal funds rate target at its mid-September FOMC meeting. In fact, expectations of a September rate reduction now are almost unanimous. And more could follow, if global economies suffer further as we now expect. The market then would remain in a holding pattern as the final hour of trading approached.
However, it would be onward and upward during that hour, with the S&P 500 Index going barely positive by the close and the NASDAQ, on strength in technology, adding 30 points, for a better than 150-point positive reversal. And even the Dow, despite weakness in Disney stock, in some financial, and in basic materials, nearly came all the way back, closing just 23 points in the red. All in all, it was a dramatic comeback, staged, we sense, by a decision by some overseas banks to cut interest rates and by the growing expectation that the Fed will do the same in September--if not sooner.
Now, after yesterday's dramatics, we see that stocks were trading with gains in Asia in the overnight hours, while in Europe, the major bourses are showing early improvement, as well. Also, after yesterday's plunge in oil, prices are rebounding; gold, up again yesterday, is now holding steady, and Treasury note yields, which ended matters at 1.68% at the end of the session yesterday, after earlier falling just below 1.60%, are now priced to yield 1.72% on the 10-year note. All of this is likely leading up to a higher start for the equity market on Wall Street today. – Harvey S. Katz, CFA