After The Close - The futures markets presaged a higher open this morning, as sentiment rose on optimism concerning a trade deal with China. This positive outlook continued into the early session, with the Dow Jones Industrial Average climbing by as many as 330 points. The S&P 500 and NASDAQ rose in tandem. However, the markets became overbought, as the Dow had risen by more than 1,100 points in the past three sessions, fueled in part by Federal Reserve Chairman Powell stating that the Fed “would be patient” concerning future policy. The indices started to fall, giving back much of the day’s gains, and filling the gap left at the open. However, the markets regained their early momentum and started to trend higher, as President Trump tweeted that talks with China were going “very well”. This bolstered the indices during the final portion of the day. All told, the Dow ended up 256 points, while the S&P 500 was higher by 25 points, and the NASDAQ climbed nearly 74 points.
Overall, market sentiment was very positive, with advancers outpacing decliners by a 3.3-to-1.0 ratio. All told, REITs and communications equities were among the strongest performers on the day, and financial stocks were among the weakest.
In commodity news, oil prices were higher today, marking the 7th consecutive higher close. This was helped by rising sentiment concerning global demand and further supplies being cut, especially by Saudi Arabia. Additionally, U.S. government bond yields were higher, as a move toward risky assets occurred today, while the VIX Volatility Index was lower, as demand for option protection fell.
Looking ahead, tomorrow will be full of economic reports. This includes the mortgage banker’s index, which is expected to be down heavily. Too, the Energy Information Administration’s report on oil inventories will likely drive trading in that commodity. On the earnings front, a few notable companies are expected to report, including Lennar (LEN), which will give some insight into how the homebuilders have done in the past few months and what we can expect going forward. - John E. Seibert III
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Following a 660-point loss in the Dow Jones Industrial Average on Thursday of last week, brought about by worries about trade, the government shutdown, and Federal Reserve policies, and a subsequent 747-point surge in that index on Friday on hopeful indications on trade, a strong employment report, and encouraging signals from the Fed Chair Jerome Powell that the central bank might be disposed to hold any further interest rate increases at bay for now, the stock market began the new week with much less certainty as trading opened.
Thus, the Dow waxed and waned during the morning, losing more than 100 points very early in the day and then rising by more than 100 points a little later in the morning. Overall, meantime, the market had a positive bias to it, as the NASDAQ, led by a solid advance in shares of Amazon.com (AMZN) stormed ahead by more than 60 points, or nearly a full percent as we passed the 90-minute mark of the session. The gain in Amazon, and the largely upbeat market tone, reflected the start of trade talks with China.
Of course, we have been down this road before, and been let down, as such discussions have made little headway. However, this time, against the backdrop of a faltering economy in that country, we might get another outcome. We shall see. Meantime, there is the Fed and its more data-driven approach, which is bolstering confidence. On the other hand, the partial government shutdown lingers on, and while this is not having a major effect on market sentiment, if it is indicative of life with divided government, it may have an impact down the road.
The stock market, meanwhile, would rally into the noon hour in New York, with solid, but not dramatic gains, holding on, as Wall Street sought to rest slightly after the fireworks of the past two sessions. However, as we reached the noon hour in New York, there was a moderate buying burst that lifted the Dow to a gain of just about 200 points. The NASDAQ also sped ahead climbing north of 100 points. The S&P 500 also was doing well adding more than 25 points. As before, optimism on trade talks was spurring the follow-up rally yesterday.
The uptrend, boosted, as well, by rising oil prices, would continue through the session, with the Dow, at one point, climbing to an afternoon gain of over 250 points. The NASDAQ, too, would jump to a gain of some 115 points, before backing off somewhat as the session wound down. The late moderating increase would reflect the lingering questions on the trade issue and the government shutdown. The continued positive results, meantime, would also suggest that such uncertainties aside, the trade talks with China and the flexible Fed stance were helping.
The session would end with a solid, if modest, increase of 98 points on the Dow and 84 points on the NASDAQ. The overall bias for the entire equity market, meanwhile, was favorable, and the second week of the new year was, at least, starting out on an up note. Looking out to a new day now, and after a second day in a row of rising prices, we see that shares in Asia were mixed to higher overnight, while in Europe, the major bourse are posting early gains. Finally, our futures are pointing to a higher opening when trading resumes this morning. - Harvey S. Katz, CFA