After The Close - The stock market opened solidly higher this morning, and managed to aggressively build upon these gains through the afternoon. At the end of the session, the Dow Jones Industrial Average was up 323 points and closed over 26,000; the broader S&P 500 Index was ahead 26 points; and the NASDAQ was higher by 75 points. Market breadth showed broad based support for equities, as winners easily outpaced losers on the NYSE. All of the major stock sectors forged ahead, with pronounced gains in the technology and consumer noncyclical issues.
Meanwhile, traders received a couple of economic news items today. Specifically, industrial production increased 0.9% during the month of December, which was a stronger reading than had been expected. In the afternoon, the Federal Reserve released its latest Beige Book summation, and that report held few surprises. Tomorrow we get a look at housing starts and building permits for the month of December, the latest weekly initial jobless claims, and a report on economic conditions in the greater Philadelphia area.
Finally, in the corporate arena, we received quarterly reports from a few large financial companies today. Of note, shares of Bank of America (BAC), Goldman Sachs (GS – Free Goldman Sachs Stock Report), and U.S. Bancorp (USB) traded lower today, suggesting some concerns on the part of investors. Tomorrow, among the big names, American Express (AXP – Free American Express Stock Report) and International Business Machines (IBM – Free IBM Stock Report) will weigh in with their numbers after the closing bell.
Technically, the stock market regained its footing today, after a sharply weaker session yesterday. Looking ahead, traders will largely be concentrating on the fourth-quarter earnings season, and that may provide the fuel needed to push stocks higher, as well as a possible late-week government shutdown if a spending deal cannot be secured. - 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 continued to be onward and upward for the still-raging bulls, at least initially yesterday, as those perennial stock market optimists, who had pushed the Dow Jones Industrial Average past 25,000 on January 4th of this year, lifted that 30-stock composite above 26,000 early yesterday, with an initial gain of well over 250 points. The leap of a thousand points in just 12 calendar days made it the fastest time ever that this point gain had been accomplished and reaffirmed the strength and durability of this historic bull market. Behind this latest surge were better-than-expected corporate earnings and increasing optimism on the economy.
The Dow was boosted early on by stellar gains in UnitedHealth (UNH – Free UnitedHealth Stock Report) and recently out-of-favor shares of drug making behemoth Merck & Co. (MRK – Free Merck & Co. Stock Report). Overall, consumer discretionary stocks led the way higher in the morning, as better-than-expected earnings from UnitedHealth and an improved outlook helped fuel this initial optimism. In the financial arena, Citigroup (C) also posted profits that topped estimates and that stock moved higher early on, as well. In all, nearly 70% of those few companies thus far reporting fourth-quarter results have beaten earnings forecasts, while 85% have done so on the top line, an unusually high percentage.
As to the early equity market surge, it was widespread and it persisted through the morning, with a few partial retracements along the way, as Wall Street sought to fashion another wire-to-wire win. Meanwhile, economic news was relatively light, as Wall Street returned from its three-day weekend, which had culminated with the observance on Monday of Martin Luther King's Jr. Day. In all, the advance was fairly inclusive, with gaining stocks holding more than a four-to-three advantage over declining issues as the morning drew to a close, and with seven of the ten major equity groups heading higher at that point.
However, the Dow's gain, once north of 280 points, eased back to below the 150-point mark as the morning concluded on some selective profit taking and worries about a possible government shutdown late this week.. The market then stabilized for a brief spell as the afternoon got under way. But that was just a brief respite, and as we moved inside the final two hours of the trading day, stocks wilted en masse, with the S&P 500, the NASDAQ, the S&P Mid-Cap 400, and the small-cap Russell 2000 all turning negative, while the Dow's advance eased back to just over the neutral line.
Then, as we moved more deeply into the afternoon, the Dow gave way, as well, as there are very real fears that such a shutdown on budget issues could transpire. At best, there would be another short-term deal put into place. However, there are real worries about reaching an immigration deal between the two parties, and this failure could balloon into a budget crisis, with major political ramifications. The market weakened further as the afternoon rolled along, with the NASDAQ, in particular, seeing a notable reversal, as losing groups and individual stocks both moved into the lead.
As we moved toward the close, the Dow, after falling some 100 points into the red, regrouped and moved back into the black, with the other groups paring their deficits at the same time. The final hour then saw the Dow move in and out of the black, before finally ending matters with a loss of 10 points. In all, the peak-to-trough negative swing of almost 400 Dow points was the largest one-day reversal in that index in almost two years. More than a year had elapsed since the S&P 500 and the NASDAQ sustained such a large reversal. Meantime, the small-cap indexes fell notably on the day, as did the S&P 500 and the NASDAQ.
Now, the question is just how much psychological damage has been sustained by the market in the wake of such a large reversal in yesterday's trading session. For now, though, Asia seems to be taking things in stride, as stocks on that side of the world ended the latest session with a mixed overall tone. In Europe, the early read on the markets is only modestly weaker. Elsewhere, oil prices are down somewhat and interest rates, down yesterday on political fears at home, are now trending slightly higher. Finally, our futures are signaling a strongly higher open when trading resumes stateside shortly and just after data on industrial production is issued. Later on in the day, the Federal Reserve will release its Beige Book economic summation. Also, earnings season is heating up with many large-cap names ready to report. Stay tuned. – Harvey S. Katz, CFA