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After The Close - The U.S. equity markets traded generally lower on Wednesday, though the major indexes pared losses from their early-morning nadirs. The soft opening hour, we think, can be dually blamed on ongoing fatigue by the bulls, which has opened up an opportunity for investors to collect profits, and news from China. Officials from Asia’s superpower remarked that U.S. bonds were becoming less attractive, which precipitated the temporary selloff. Also weighing on sentiment from the geopolitical front was concern over the fallout of the United States’ potential exit from NAFTA.

However, the rest of the day saw most equities regain at least some of their value, with a surge by banking stocks helping to somewhat offset losses elsewhere. Indeed, only the financial and energy sectors finished the day with aggregate gains. Notable weakness by telecommunication and utility issues resulted in a 1.7-to-1.0 lead by declining over advancing shares. In our view, the effect of the international news items that catalyzed today’s softness was exacerbated by the typically listless trading pattern ahead of fourth-quarter earnings season.

Meanwhile, U.S. crude oil rose to a three-year high after a favorable inventory report from the Energy Information Administration (EIA). Domestic stockpiles fell nearly 5 million barrels last week, well above the 3.9 million estimate. The EIA also raised its already buoyant forecast for 2018 oil demand. Still, unexpectedly high builds in gasoline and fuel categories tempered enthusiasm to some extent, underscoring the cautious nature of the ongoing optimism in this commodity market.

Looking forward, the rest of the week will focus on some key economic updates. Specifically, inflation data on Thursday and Friday will be closely watched, while the monthly retail sales report on the final day of the week will inform the market on the relative success of the recent holiday season. Thereafter, traders will begin to anticipate the upcoming earnings season. For the first time since the GOP’s tax reform was passed, Corporate America will offer updated guidance. Stay tuned. – Robert Harrington

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

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Before The Bell - The stock market, which began the first full trading week of 2018 on a mostly mixed note on Monday, continued that uneven trend yesterday morning. To be sure, a quick glance at the major large-cap indexes would tend to dispute that observation, as the Dow Jones Industrial, a nominal casualty to start the week, had leaped out to a better-than-100-point gain as the morning progressed. Modest upticks also were logged by the S&P 500 Index and the NASDAQ. However, a deeper look into the morning's dealings also showed a plurality of losing stocks over gaining issues on both the NYSE and the NASDAQ.

Moreover, the small-cap dominated Russell 2000 was trading below the neutral line, while six of the top ten equity sectors were below water, too, as the noon hour approached on the East Coast. As for early influences, there appears to be a general consensus that the coming earnings season will be a good one, with profit growth for the fourth quarter of last year now estimated at 10.5% for the 500 companies domiciled in the S&P 500 Index. In the meantime, for companies already posting their fourth-quarter results, 78% have beaten expectations.

As to the Dow, the early strength lifted that composite to yet one more all-time record high. The Dow was boosted by strength in both the health care and financial issues, along with shares of aerospace and defense giant Boeing (BAFree Boeing Stock Report). The bulls then stiffened their resolve somewhat, as we headed into the first part of the afternoon, with the Dow crossing the 120-point advance line, while the Russell 2000 tiptoed into the plus column. As before, the major theme was the onrushing earnings season and the very high expectations engendered by that quarterly event.

Meanwhile, these aggregate improvements aside, half of the major equity groups were still off on the day, led down the losing path by the high-yielding utility stocks, as bond yields jumped notably, with the return on the 10-year Treasury note climbing to 2.54%, or just modestly shy of the 12-month high of 2.62%. Clearly, the higher yields are not dampening enthusiasm for stocks. However, the rise in bond returns will need to be watched, as higher yields will, at some point, act as competition for equities. At this point, though, we are not there.

The market then continued on its way as the afternoon started to wind down, with the Dow's advance moving up over 155 points in mid-afternoon. That composite's rise was pared back as we neared the close, while the S&P Mid-Cap 400, and the Russell 2000 both dipped into the red. Overall, with the S&P 500 Index and the NASDAQ up less aggressively than the Dow, with losing stocks holding a small four-to-three lead on gaining issues, and with more than half the equity groups lower for the session, the latest day's action was little better than mixed at the close.

Looking out at a new day now, we see that stocks traded generally across Asia overnight, while in Europe, the principal bourses are now passing hands with notable losses. Elsewhere, the U.S. 10-year Treasury note, which concluded matters yesterday afternoon yielding 2.55%, are now passing hands at 2.58%. Finally, as we await inflation data tomorrow and Friday and the critical monthly retail sales report on Friday, as well, the U.S. equity futures are pointing to a materially weaker start when trading resumes shortly. – Harvey S. Katz, CFA

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