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After The Close - The equity market spent much of the day looking for direction, and ultimately ended on a mixed-to-lower note. At the close of trading, the Dow Jones Industrial Average was down 43 points; the broader S&P 500 Index was off nominally; but the NASDAQ was higher by 11 points. Market breadth also showed a divided session, with decliners modestly ahead of advancers on the NYSE. From a sector perspective, strength was found in the telecommunications, energy, and healthcare issues, while weakness was seen in the financial and industrial names.

Traders received a mixed batch of economic news this morning. According to Automatic Data Processing (ADP) there were 153,000 jobs added to the private sector in the month of December. This figure was quite a bit lower than the November figure, and also fell short of analyst expectations. Meanwhile, initial jobless claims came in at 235,000 for the week of December 31st, a more favorable reading than had been anticipated. We will get a closer look at the nation’s employment situation on Friday morning, when the government releases the non-farm Payroll figures for the month of December. Given that the Federal Reserve seems inclined to lift interest rates, traders probably would like to see ongoing strength in the broader economy, as well as in the labor markets.

In the corporate arena, a handful of corporations delivered their results today. Specifically, shares of Constellation Brands (STZ) moved lower, even though the beverage company posted decent results. Shares of Walgreens Boots Alliance (WBA) moved up, as investors were pleased with the drug store operator’s report. However, the main news item for the day was found in the retail sector. Specifically, shares of department store leaders Macy’s (M) and Kohl’s (KSS) declined notably on concerns about weaker-than-expected holiday sales.  

Technically, stocks have been moving in a sideways range for the past couple of weeks. While the market put in an impressive performance in November and early December, it seems that logging additional gains has become challenging. - Adam Rosner

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

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12:10 PM EST - After two winning sessions to start the holiday-shortened first trading week of 2017, the U.S. equity market started out in directionless fashion today, but is weakening sharply as we pass the noon hour on the East Coast. Market breadth has turned in favor of the sellers, with the major equity indexes, save for the NASDAQ Composite (see below), spending most of the morning in negative territory. Much like yesterday, the small-cap stocks are seeing the biggest percentage move, and to the delight of the bears it is down nearly 2%.

With earnings season still a few weeks away from commencing (note that individual company reports will be released a bit later than normal for many of those with December year ends), investors are looking at the economy for some direction. The news from Capitol Hill and the White House during this transition period in Washington D.C. also is getting the investment community’s attention. On the business beat, the news was mixed to slightly positive this morning. Specifically, nonmanufacturing activity continued to expand at a healthy pace in December, unemployment claims fell sharply, but private-sector job creation disappointed last month.

On the business beat, the most significant news was the aforementioned reading on the services sector. At 10:00 A.M. (EST), the Institute for Supply Management reported that nonmanufacturing activity expanded by healthy 57.2% in December, continuing a positive trend. Of the 15 nonmanufacturing respondents surveyed, 12 reported growth last month. Also encouraging was the uptick in the new orders metric. However, the employment component fell last month, but was still comfortably above the dividing line of 50.0, at 53.8. The services report was another sign that the U.S. economy was strengthening as 2016 came to a close.

Meantime, another big story this morning was the disappointing news from the retailing sector. Specifically, brick-and-mortar retailers Macy’s (M) and Kohl’s (KSS) reported dismal comparable-store sales for the holiday shopping season and gave a profit warning. The companies noted increased competition from online retailers, led by Amazon.com (AMZN), and fewer purchases of apparel this Christmas season for the shortfall. Shares of Macy’s and Kohl’s (down sharply this morning) are weighing on the consumer discretionary sector, which was one of the laggards among the 10 major equity groups, along with the financial and utilities categories. Conversely, we are seeing some buying in the healthcare, technology, and telecommunications groups, which is providing some support to the NASDAQ this morning. The commodities sectors (basic materials and energy) also is being helped by a weaker dollar.

As we pass the midday hour on the East Coast, the Dow Jones Industrial is down 115 points; the NASDAQ is off 10 points; and the S&P 500 Index is lower by nine points. Given the weakness in the broader small-cap sector and the negative advance/declinespread on both the NYSE and NASDAQ, we think that the bears will hold an advantage as trading moves toward the second half of the session. Stay tuned. - Wiliam G. Ferguson

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 - After some overdue backing and filling by an overbought equity market last week, expectations had been that we might well see a further selloff in the initial few sessions of the new year. However, such hopes by the bears were quickly dashed on Tuesday, as the Dow Jones Industrial Average, which had come within 20 points of the psychologically significant 20,000 mark late last year, before reversing course and pulling back somewhat, regrouped and rose 119 points on the opening trading session. The other indexes performed well, too, as the new year got off smartly.

Meanwhile, buoyed by that fast start and by supportive economic data in the form of strong readings on construction spending and manufacturing, the stock market began the second session of 2017 to the upside, as well, helped by a rise in oil prices and a drop in the dollar from a 14-year high. Additionally, unlike Tuesday, when the small- and mid-cap indexes labored, the Russell 2000 and the S&P Mid-Cap 400 got out of the gate quickly and led the charge higher throughout the day. As to the larger cap indexes, they were higher, too, but not materially so, with the Dow's early gain holding in the range of 20 to 40 points.    

As the morning progressed, however, the Dow, which had been a big winner on Tuesday, started to falter, but managed to stay above the breakeven line. That pullback proved brief, though, and as we headed toward noon in New York, some of the indexes, led by the S&P Mid-Cap 400, were strongly higher. The overall positive bias was additionally underscored by the fact that nine of the top 10 equity sectors were higher on the day at that point, while the advance-decline ratio was a strong four-to-one in favor of the bulls. That was notably better than on Tuesday when the ratio was closer to two-to-one for most of the day.  

The market then continued to strengthen as we moved through the lunch hour, with the S&P Mid-Cap 400 climbing by nearly 1.5% at that time. The gain in the Russell 2000, meanwhile, reached 2%, easily surpassing the much more modest increases tallied on the more widely chronicled indexes. This dual trend continued throughout the afternoon, but with increasing strength across most of the core sector categories. The gains in the S&P Mid-Cap 400 and the Russell 2000 were especially noteworthy, but the upticks in the Dow and the NASDAQ weren't too shabby either. 

Helping things along late in the day was a benign issuance from the U.S. Federal Reserve. Specifically, the Fed released the minutes from its last FOMC meeting in mid-December. At that meeting, it raised interest rates for the first time in a year and suggested that additional rate hikes would be forthcoming in 2017. That was especially so if the economy continued to strengthen, and in particular if there was an increase in fiscal stimulus. The minutes seemed to imply that we would see greater growth in the coming months; therefore, we likely would get more interest rate increases, as well.

As to the market in the latest session, it was the same old story of growing optimism over the prospect of greater fiscal stimulus and new tax cuts emanating from the incoming Trump Administration. So, stocks mostly strengthened into the close, with the Dow-30 coming within 45 points of 20,000. At the final bell, that index settled in with a 60-point gain, leaving it just 58 points shy of 20,000. The NASDAQ, meanwhile, added 48 points, while the Russell 2000 jumped 31 points, or better than 2%. It was a big win, overall, for the bulls on this second session of the new year.      

Looking out now to a new day and checking matters overseas, we see that most of the country indexes in Asia were largely mixed in the overnight hours, while on the Continent this morning, European equities are relatively flat, as well, as we await non-manufacturing data at home later this morning. As to our markets, oil is ticking higher; bonds are firming, as yields dip further, and our equity futures are pointing to a modestly weaker start as we move into the second half of the initial trading week of 2017.   - Harvey S. Katz

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