After The Close - The markets started out choppily today, despite the release of solid economic news and generally better quarterly earnings reports. Retail sales were higher than expected, while earnings at a few banks showed solid year-over-year gains. The Dow Jones Industrial Average, meantime, was lower by as many as 69 points in early afternoon action, while the other indices were down in tandem. The markets then turned higher for a spell, regaining a portion of the losses on the S&P, while hitting the daily high on the Dow. This turned out to be short-lived, as President Trump stated that the trade talks between U.S. and China still had a long way to go. The market averages slipped again, and the S&P 500 made its daily low. However, Fed Chairman Powell gave a speech in France noting “uncertainties” in the market existed, and some investors believe this increased the likelihood of a rate cut in July. The composites then moved higher for a spell. Overall, the markets wound up not too far from breakeven levels. All told, the Dow closed down 24 points, the S&P 500 was lower by 10 points, and the NASDAQ decreased 35 points.
Additionally, market breadth was rather mixed, neither favoring the advancers nor decliners by a large amount. Industrial stocks were among the best performers on the day, while energy-related issues were among the weakest.
In commodity news, oil prices fell today, on news that Secretary of State, Mike Pompeo, indicated that Iran is ready to negotiate with the U.S. about its missile program. This development ought to ease global tensions, and allow for greater supplies to move through the Straits of Hormuz. In addition, U.S. Treasury bond yields rose across the board, as a move away from the safe-haven assets occurred. We think this was due partially to traders paring their bets on a larger rate cut. Meantime, the VIX Volatility Index rose a bit, as demand for options increased.
Looking ahead, a notable amount of economic data is slate for release tomorrow. This includes the Energy Information Administration’s weekly report on crude oil inventories, as well as housing starts and building permits for June.
Too, a key companies are slated to report tomorrow, including Dow-component International Business Machines (IBM – Free IBM Stock Report), as well as several big banks. Too, we expect that trading tomorrow will be affected by a few key issuances released after the closing bell today. – 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 - The U.S. stock market, which broke several all-time record highs last week, with the Dow Jones Industrial Average surpassing 27,000 and the S&P 500 Index eclipsing 3,000 started the new five-day stretch slightly to the downside. Behind the latest move apparently was some profit taking following the big run to start the new month. That uptick had been based on the near-consensus expectation that the Federal Reserve will cut interest rates when it meets at the end of this month. Expectations are that the central bank will lower the federal funds target by 25 basis points.
And Wall Street, to be sure, clearly likes lower interest rates. So, stocks have surged, with the major averages all striking new ground. But yesterday morning also corresponded with the start of second-quarter earnings reporting season. Expectations here are modest, to say the least, as a slowing economy figures to take some toll on profit results. However, we do expect some decent comparisons, and figure the average company will exceed its forecasts. If that happens, the bulls should be satisfied.
As to the market yesterday morning, it generally broke to the downside, but not dramatically so, and proceeded to then go back and forth into and out of the plus column. In all, we sense it was a combination of not wanting to be left out of this rally combined with some selling after the big run up in recent weeks. Specifically, the morning saw stocks stay in a narrow range, with a brief rally after the first hour countered very quickly by modest selling in the second hour. All told, as the morning ended, the Dow and S&P were a bit lower; the NASDAQ slightly higher.
The early afternoon then saw the stock market to back and fill for several hours, never ranging very far from the breakeven line. With an interest rate cut very likely on July 31st, the focus this week will almost assuredly be turning to earnings, where several big banks will soon be reporting their results in the coming days. Also of note, there will be a few critical economic releases. Finally, on the economic front, there was a report out of China yesterday morning showing a further slowdown in that nation's business advance.
The market's meandering then would continue into the final minutes, when a modicum of buying took place that would grudgingly lift the key averages into the profit column, and to record levels. In all, the Dow would add 27 points; the S&P 500 would add less than a point; and the NASDAQ would climb 14 points. The lone discordant note was an eight-point decline in the small-cap Russell 2000 Index. Overall, as a look at the performance of the mutual fund sector, it was a mixed showing for the most part.
Now, a new day begins, and as we look ahead to the start of another earnings season and additional economic data, we see that the principal composites were mostly lower in Asia in the overnight dealings. In Europe, in the meantime, the key bourses are moving with little direction at this hour. In other markets, oil prices are nudging higher and Treasury yields are essentially flat so far today. Finally, the current trend in the equity futures suggests that the market will begin today's session in choppy fashion. – Harvey S. Katz, CFA