After The Close - Stocks closed lower on Friday, ending a week that featured high volatility. Today’s market action mirrored that of the past several sessions in that there were sharp moves, up and down, and investors showed a more cautious inclination.
At the close, the Dow Jones Industrial Average was down 91 points; the S&P 500 lost 19 points; and the NASDAQ was off 80 points, making it the worst percentage performer among the three major averages.
This morning, the market had to deal with more unfavorable news on the trade squabble between the United States and China when the White House indicated that a September meeting between the two nations’ negotiators was not set in stone.
Reports that the U.S. did not renew certain licenses for companies to do business with China’s tech-leader Huawei, apparently in response to China halting its purchase of U.S. farm goods, also hurt sentiment.
However, a later report that the Commerce Department may still process license requests to conduct business with Huawei seemed to help stocks bounce off of their lows.
But the overall tone of trading had a defensive feel. Stocks are not that far from their all-time time highs, although the big swings over the past few days are an indication that Wall Street is concerned about growth ahead.
The sharp decline in bond yields in recent weeks also points to less certainty about corporate profits. The good news is that bond yields have fallen so low that investors with a sufficiently long horizon stand to do better in stocks over time.
The near-term focus is less assured, of course, with daily headlines highlighting the ongoing trade rift between the United States and China, as well as the U.K.’ s impending departure from the European Union.
The disruption caused by these developments is clearly weighing on economic progress, as shown by this morning’s news that GDP in the United Kingdom turned negative by 0.2% in the second quarter, marking the nation’s first backsliding since 2012.
Elsewhere, oil prices spiked about $2 a barrel on speculation that Saudi Arabia may soon reduce production. Oil-exporters, such as Saudi Arabia, need higher prices to balance their state budgets.
Overall, it was an unsettled day and week for stocks during a month that is usually quiet. With earnings season winding down, developments on the trade, interest rate, and currency fronts are due to receive added attention in the coming weeks. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - What a difference a day make. On Wednesday, the bears were out in force at the open and within minutes of the start of the new trading day, the Dow Jones Industrial Average was down almost 600 points. The bulls would then spend the rest of the session whittling down that massive deficit, finally ending matters with just a nominal loss in the blue chip index. Fast forward to yesterday morning and we saw a reversal in fortunes, with the Dow surging by some 200 points after the first hour. Driving stocks sharply lower on Wednesday was a plunge in bond yields around the globe. Propping them up yesterday was a rebound in returns.
On point, after that sharp midweek selloff, and the subsequent comeback later in the day, stocks were bought aggressively to begin the trading session yesterday. The market was boosted not only by rising bond yields, with the yield on the 10-year Treasury note climbing from a multi-year low of just below 1.60% to back up to 1.78%, but also by better-than-expected trade data out of China. Also helping was a slew of interest-rate reductions from central banks around the world. The pointed to concerns over growth slowing down across the board. Expectations also rose for a rate cut next month by our Federal Reserve.
An aggressive rate stance by global banks is not always forthcoming during periods of economic angst, as the monetary authorities often are behind the curve, so to speak. However, these more aggressive postures now suggest some worries about the possibility of broad recessions evolving in the months ahead due to the current trade rift between the United States and China. As to the data out of China, that nation reported that exports rose 3.3% on a year-over-year basis in July. Expectations had been for a drop in exports of 2%. All the news was not good, though, as food processing giant KraftHeinz (KHC) posted disappointing results and the stock, already under pressure this year, fell sharply, in response.
Elsewhere, stocks continued to roll with the Dow climbing by some 350 points in the early afternoon. The NASDAQ, meantime, boosted by solid gains in a number of technology stocks, rolled ahead by an even bigger percentage. In all, the S&P 500 and NASDAQ had made up all of the week's losses. The smaller-cap indexes also shone, as investors on edge last week and earlier in the current five-day span, continued to get their confidence back, even as the global situation remained fraught with uncertainty. In all, we appeared to be setting up for a modestly better week, overall.
The good showing then would persist into the close, with the leading averages all closing near session highs. Specifically, the Dow would add 371 points; the S&P 500 Index would finish 54 points in the green; and the NADSAQ would surge by 176 points. Strong increases also were tabulated by the S&P 400 and the small-cap Russell 2000. Winning issues swamped losing stocks, as Wall Street continues to make a vigorous recovery following the selloff late last week and on Monday of the current five-day span. Sentiment thus had clearly shifted and the bulls are once more in charge--at least for now.
Looking out to the week's final session, we see that after the fireworks on shore that the principal indexes in Asia were mixed in the overnight hours as Japan's GDP exceeded expectations, while in Europe, the leading bourses are lower on the latest political unrest in Italy. At the same time, oil prices, which have been on a rollercoaster this week, are changing little and Treasury note yields are lower once again. Finally, as earnings season, now on the wane still produces some high and low lights, our equity futures are suggesting a weaker start once trading resumes a little later this morning. - Harvey S. Katz, CFA