After The Close - The markets started the day lower, as some mixed earnings reports and fears about a trade deal with China taking longer than expected hurt sentiment. This one-two punch sent the Dow Jones Industrial Average lower by as many as 151 points in the early portion of trading, while the other indices fell in tandem. However, the markets reached an oversold condition and started to rebound. This continued throughout much of the afternoon, and the S&P 500 and Dow eventually broke into the green. This move was helped by New York Federal Reserve President John Williams stating that central bankers needed to act quickly and forcefully when economic growth was slowing. Traders thought this signaled increased odds of a 50-basis-point reduction when the Fed determines interest-rate policy at the end of July. However, the move up tapered off in the final portion of trading. All told, the Dow closed the day up three points, the S&P 500 was higher by 11 points, and the NASDAQ gained 22 points.
Additionally, market breadth was rather mixed today, favoring neither the advancers nor the decliners by a large amount. Interest-rate sensitive utilities stocks were among the best performers on the day. However, communications equities were among the weakest, hurt by a large slide in notable constituent Netflix (NFLX), which reported disappointing earnings results after the bell yesterday.
In commodity news, oil prices were lower today, despite escalating tensions in the Straits of Hormuz. Iran admitted earlier today that it had seized a foreign oil tanker, and the United States Navy shot down an Iranian drone later in the day. These tensions will likely lead to higher oil prices in the days ahead.
Meantime, U.S. Treasury bond yields were lower across the board, as many investors moved toward safe-haven assets. Traders have been increasing bets of a greater interest-rate cut, though consensus still supports a 25-basis point reduction. The VIX Volatility Index was lower today, as demand for options protection fell a bit.
Looking ahead, tomorrow will have a few economic reports slated for release. These include the University of Michigan’s Consumer Sentiment Index. Meantime, earnings season is in full swing, as Dow-component American Express (AXP – Free American Express Stock Report) releases quarterly results alongside several other large financial companies. Too, trading tomorrow also will likely be affected by Dow-component Microsoft (MSFT – Free Microsoft Stock Report), which issued earnings after the 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 stock market, following back-to-back unprepossessing performances to start the new week on Monday and Tuesday, began the middle session of this five-day stretch in similarly underwhelming fashion with modest losses after the opening bell. These early losses, which, as noted, were modest evolved as the Street examined the early second-quarter earnings reports. This data have been decent, for the most part, and we would expect this pattern to persist. Among the early returns were from banking giant Bank of America (BAC), which posted better-than-expected metrics for the recent period.
Conversely, railroad giant CSX Corp. (CSX) posted weaker-than-forecast results after the bell sounded on Tuesday afternoon, and that stock fell rather sharply in price. To date, according to a major earnings reporting service, 7% of all S&P 500 companies have reported and among those, a clear majority have surpassed expectations. Earnings growth for that group is just over 3%. The consensus forecast for the period is a slight retreat in net. But is seems, at least from the early returns that the quarter may be better than presumed. And that could give stocks a lift.
Meanwhile, after that early dip, we saw some light buying that momentarily pushed the Dow Jones Industrial Average into the plus column after about a half hour of trading. But that was a brief respite, and the market soon was headed slightly lower once more. In other news at this time, the Commerce Department reported that housing starts had totaled 1,253,000 on an annualized basis in June. That was down slightly from the May tally and also was below expectations of 1,270,000 for the latest month. Also, building permits, a more forward-looking indicator, eased as well, falling to 1,220,000 in June. The May tally was 1,299,000 annualized.
The weak housing metrics coupled with a flattish reading on industrial production issued on Tuesday, are further indications that the nation's economy likely slowed in the second quarter, with GDP growth, a solid 3.2% in the opening stanza, likely to have declined to about 2% in the just-ended three months. Going forward, we are scheduled to get data on the leading indicators later today and figures on consumer sentiment tomorrow. The softer housing metrics, meantime, probably contributed to a somewhat lower level of interest rates yesterday morning, with the yield on the 10-year Treasury note easing to 2.08%.
Then, after some early indecision, the Dow would head notably lower as the morning wound down, falling by 95 points before trying to rally somewhat half-heartedly as we reached the noon hour on the East Coast. At that time, the blue chip composite was off by 35 points. The other indexes also were lower, as well, but likewise off of their morning lows. The market then would drift somewhat lower into the middle of the afternoon, with only scattered strength in technology helping offset some fair-sized profit taking. Stocks would continue to drift lower toward the close.
Then, 20 minutes before the final bell, Federal Reserve Bank of Kansas City President Esther George said she expects to be flexible, but does not yet see the case for an interest rate cut just. It is doubtful her stance will affect the late-month rate decision, which we still believe will result in a cut in borrowing costs, but it could have an impact thereafter on FOMC sentiment. Whatever the case, those remarks coincided with a late selloff that left the Dow down 116 points on the day, the session's nadir. In sum, it was a weak day, with the Fed's Beige Book economic summation also not helping matters, as it suggested some weakness in the economy.
Looking ahead to a new day now, we see that stocks were off sharply in Asia overnight on increasing trade fears. In Europe, meanwhile, the major bourses are charting a somewhat weaker course at this time. Also of note, oil prices are climbing a little and Treasury yields, after dipping yesterday, are easing a bit further in dealings thus far this morning. All of this likely equates with an unimposing opening on our shores when live trading resumes this morning in what has been a week of mild setbacks for the bulls so far. – Harvey S. Katz, CFA