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After The Close -  The futures markets fell considerably overnight as news broke that the CFO of Huawei Technologies, a private Chinese company that is the largest telecommunications-equipment manufacturer in the world, had been arrested in Canada at the behest of U.S. authorities. Given the importance of this company to China’s economy, it caused shockwaves across the global markets, and concerns rose about whether a U.S. trade pact with China will still be achieved. Selling accelerated in the U.S. futures markets, which continued into the live trading session. When the indices hit their daily lows, the Dow Jones Industrial Average fell by some 780 points from Tuesday’s close, and the S&P 500 was down as many as 80 points.

Still, the markets had become notably oversold, and bounced back thanks to a few positive developments. These included a two-week funding extension for the U.S. Government, which will help to avoid a shutdown. In addition, Atlanta Fed Chair Bostic stated that interest rates were “within shouting distance” of neutral, suggesting future rate hikes will slow. These influenced the markets to trend upward, while making a series of higher highs and higher lows. By the time trading closed, the losses had narrowed considerably, and the Dow was only down 0.3% on the day.

Still, market breath was negative, as decliners outpaced advancers by a 1.8-to-1.0 ratio. Real estate and communications stocks traded positively, and were among the strongest performers, likely helped by reduced interest rates. On the other hand, energy stocks were among the weakest performers, hurt by a further slide in oil prices. However, that commodity and the related stocks pared losses as optimism for an OPEC cut took hold.

In economic news, the U.S. total trade deficit rose to a 10-year high in October, and the deficit with China expanded 7.1% year over year. This suggests that current tariffs have not closed the gap between the U.S. and China. Meantime, factory orders fell 2.1%, year over year, across a broad array of goods. Orders fell considerably for aircraft and parts, for both for defensive and commercial use. However, non-durable goods showed a 0.3% increase, which suggests that consumer demand is healthy.

Looking ahead, tomorrow’s economic slate is full of reports, including the November non-farm payrolls release and the unemployment rate. In addition, consumer credit will be released. On the earnings front, Vail Resorts (MTN) is scheduled to report its quarterly results.

John E. Seibert III

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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11:30 AM EDT - The stock market, which saw an 800-point skid in the Dow Jones Industrial Average on Tuesday, and then closed for the funeral of former President George H.W. Bush yesterday, opened for trading this morning with the sellers ready.

Specifically, within minutes after the open, the Dow was off by 500 points. It then tried to pare those deficits, but to no avail, as the market held close to its initial levels going forward for the next hour, or so. However, in just the past few minutes, the selling has picked up again, with the Dow plummeting to a loss of some 700 points, making it a 1,500-point tumble in the last two sessions.

Concerns about the future of the U.S. business expansion, following a rise in short-term bond yields, to in some cases, higher levels than longer-dated maturities have spooked investors. That so-called yield inversion can be a predictor of a future recession. It also can be a false signal, so nothing is yet etched in stone on that count.

Also on the minds of investors are concerns about the future of trade relations between the United States and China and worries about slowing growth in Europe and parts of Asia. Add in political uncertainty in Washington and the market is clearly on edge.

In all, as we reach the two-hour mark of trading, we see the Dow off 695 points; the S&P 500 lower by 68 points; the NASDAQ down by 148 points; and the small-cap Russell 2000 in the red to the tune of 28 points. – Harvey S. Katz, CFA

At the time of this article’s writing, the author did not have positions in any of the companies mentioned. 

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Before The Bell - News that the United States and China had brokered a trade truce over the weekend got the ball rolling strongly on Wall Street to start the new trading week and month on Monday. In fact, within minutes after the open, the Dow Jones Industrial Average was up more than 440 points. However, that would prove to be the high-point for the day, with the stock market staying positive, but not building on that early advance. In fact, there would be some whittling away at the gains, with the Dow finally ending the session up by 288 points, with the intraday advance at one point descending to fewer than 150 points.

Then, there was some serious rethinking of the trade truce between the two economic powers by Tuesday, and stocks began the latest session with sharp reversals. To be sure, Tuesday's caution did not fully counter Monday's optimism at first. However, there was enough morning selling to bring the Dow down by more than 300 points. The other major composites fell back in tandem, with the small- and mid-cap indexes suffering the most. Worries about slowing growth in 2019, with news of an inverted yield curve, in which short-term interest rates trade above longer rates--a suggestion of a business reversal--weighed on sentiment, as well.     

As the afternoon began, there was a big selling wave that engulfed the equity market very quickly, driving the Dow down briefly to a loss of more than an 800 points before we moved inside the final two hours of trading. Specifically, the Street was worried about a bond market phenomenon known as an inverted yield curve signaling a possible economic slowdown or even a recession. The financial stocks led the downturn in the market on those slowdown fears. Not only were there fears about a flattening or inverted yield curve, but there also were worries that a long-term trade deal might not be brokered with China, after all. 

Long-term interest rates, meantime, continued to fall, with the return on the 10-year Treasury note easing back to 2.92%--or some 30 basis points under the yield in place just a month or so ago. Although such a decline would normally be good for Wall Street, the rationale for this drop--a possible slowing economy and narrowing profit returns--is not encouraging for investors. Once the sellers amassed, the market would stay lower for the rest of the day, with major declines across the board. Only the VIX volatility index would show significant strength. 

Regarding China, the United States and that fast-growing nation had agreed over the weekend to hold off on any additional tariffs on each other's goods in January. But there since has been some confusion as to when the truce would begin. So, there was a loss of confidence taking hold just one day after the formidable rally and a day ahead of yesterday's stock market closure for the funeral of former President George H.W. Bush. The market will open for trading later this morning following Tuesday's severe setback. As to the equity market, it would end near the day's lows.

In all, the Dow would end off 799 points, to just over the psychologically important 25,000 level; the S&P 500 would lose 90 points, to end just at 2,700; and the tech-driven would tumble 283 points. Worse, the small-cap Russell 2000 shed more than 4%. Many more stocks fell than rose on the day in one of the most severe setbacks during this long bull market. Now, following the one-day hiatus in trading, we look out at lower price action in Asia overnight and to sharp declines in Europe so far this morning. Moreover, after a day that saw a reasonably positive report on non-manufacturing activity issued, the U.S. stock market is set to open notably weaker.       

Where we go from here will be telling in the short run. We have had both sides of the coin so far this week, with the early euphoria on Monday followed by the major selling on Tuesday. Will we get a Santa rally? Things do not look all that promising now, but the situation can change on a dime, as we have seen so far this week. The next few sessions could be setting the stage either way. Stay tuned.   - Harvey S. Katz, CFA 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.