After The Close - The U.S. equity market returned some value on Tuesday, halting a recently intensified rally. As optimism for the passing of the lynchpin economic policy has mounted, so too have stock prices. All three of the large-cap indexes set new highs on Friday and Monday, so today’s softness is mostly a reflection of investors collecting some profits amidst elevated valuations. The auspicious outlook for economic policy, as well as an expected “Santa Claus” rally, leads us to believe today’s downturn will likely be a temporary interruption.
Midway through the afternoon, news broke that the House of Representatives had passed the tax bill, a business-friendly proposal that will bring the corporate rate to 21%. While this report did little to break the daylong bout of selling, it does bring the GOP one step closer to implementing the key reform measure that is largely responsible for the post-election bull market. In fact, the Senate is expected to approve the bill this evening.
As for the business beat, better-than-expected housing start data for the month of November failed to empower the ostensibly fatigued bulls. We believe Wednesday’s trading will revolve around tax reform, so do not expect much influence from the existing home sales report. The market sectors underscore the largely negative breadth today. Only the non-cyclical consumer goods industry managed to post an aggregate gain. Overall, declining shares outnumbered advancing issues by a nearly two-to-one ratio.
Meanwhile, U.S. crude bounced back slightly, as traders reacted favorably to a pipeline shutdown in the North Sea. This helped to offset persistent concerns over domestic output, which pushed the per-barrel value slightly lower on Monday. Tomorrow’s release of U.S. inventory data could stoke some movement. But in all likelihood, U.S. crude will remain range-bound until early next year. Investors anticipate hearty global demand, especially from China, which could help to bring the commodity above $60 a barrel.
Overall, the NASDAQ Composite shed the most of the major large-cap indexes. The S&P 500 and Dow were also negative for most of the session, though the latter climbed to within striking distance of its breakeven line by the closing bell. Looking forward, we believe the impending passage of the tax bill by the Senate could spur prices higher when the market reopens in the morning. By the end of the year, however, we may see some more intermittent profit taking to occur as investors reassess their holdings ahead of 2018. - Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
12:00 PM EST - The equity market put in a weak performance this morning, after a higher opening, and is currently trading near its session lows. At about noon in New York, the Dow Jones Industrial Average is down 42 points; the broader S&P 500 Index is off five points; and the NASDAQ is lower by 29 points. Market breadth is somewhat negative, with declining issues slightly ahead of advancers on the NYSE. The major stock market groups are mixed, with slight gains in the consumer and energy issues, offset by declines in the technology and utility names.
Today’s economic news was supportive. Specifically, housing starts rose to 1.297 million units, annualized, for the month of November. This figure came in a bit better than had been anticipated. Tomorrow, we will get a look at existing home sales for the month. For analysts following the commodity markets, the EIA will post the latest weekly crude oil inventory number tomorrow, too.
Meanwhile, a few corporations posted their financial results over the past 24 hours. Specifically, shares of Carnival Corporation (CCL) are trading modestly higher today, after the cruise line operator delivered a respectable report. Further, shares Darden Restaurants (DRI) are up, as investors react favorably to that company’s latest report.
Technically, the stock market continues its upward ascent. Traders are, no doubt, looking forward to the likely passage of the Trump Administration’s tax reform measure. – 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 - It is all about tax reform on Wall Street. On point, when chances for passage rise, the stock market heads higher; when there are doubts creeping in, there is some choppiness, or worse. So, over the past weekend, when it looked as if the Republicans had the necessary votes to pass legislation that would materially cut the corporate tax rate, the market headed dramatically higher at the opening yesterday, again eclipsing records on the large-cap indexes. This initial strong gain, followed stellar performances early Monday in Asia and Europe.
As for equities, they headed strongly higher at the open, with the Dow Jones Industrial Average quickly climbing to a gain of more than 220 points. That early advance, in fact, lifted the 30-stock composite to within 125 points of the 25,000 mark. Also rising strongly was the NASDAQ, with that tech-heavy index rising past 7,000 for the first time ever. The tax bill, which is seemingly headed for a signing at the White House by later this week, is popular on the Street, as it should prove to be highly supportive for corporate profits.
In addition to the promise of notably lower corporate tax rates, the equity market also cheered on corporate deals involving some large food processing companies. So, the consumer non-cyclical group was joining the market's powerful additional surge yesterday. Breaking the advance down during the morning, we saw the market end the first half of trading near session highs, with all of the individual groups higher, led by basic materials and energy. The lone early outlier was the utility sector, while gaining stocks held a three-to-one lead on the Big Board.
The gains then continued as the afternoon got under way, with the advance showing few signs of wilting as we began the second half of trading. As before, the advanced continued to be fueled by optimism out of Washington. With this strong start and eventual decent finish, the Dow is now up some 25% on the year. As to other groups on the day, the session continued to press forward, with help from the retail arena as well as the snack foods, as The Hershey Company (HSY) and Campbell Soup (CPB) were aided slightly by announced purchases.
Also doing well as the day wore on was Twitter (TWTR), which rose better than 10% on bullish analyst comments. Meanwhile, according to some analysts, the stock market will be a bigger beneficiary of the cut in the corporate tax rate than any other sector. Still, such optimism aside, the market did close off of its best levels of the day, with the Dow giving back some 85 points of its best gain in the morning, to close ahead a still formidable 141 points. In all, it was the 70th new high for that index on the year thus far.
Looking ahead to a new day, we see that shares in Asia, up nicely to open the week on Monday, are showing some initial gains his morning, while in Europe, the bourses are trading lower thus far. In other markets, oil prices are up and interest rates are mixed in early dealings. Finally, U.S. equity futures are suggesting a higher opening when trading resumes at 9:30 AM (EST). - Harvey S. Katz, CFA