After The Close - The U.S. markets started off quite positively today, as investor sentiment picked up a bit. Initial jobless claims came in higher than expected. And, based on this news, some traders believe the likelihood of the Federal Reserve cutting interest rates later this year has become more probable. The Dow Jones Industrial Average rose by around 142 points, while the S&P 500 was up by 15 points in early action. However, this initial momentum tapered off a bit as the indices became overbought, and the market headed lower for a spell. Still, the composites rebounded close to their prior intraday highs, then moved around choppily for much of the rest of the session before shooting higher in the final minutes. All told, the Dow closed up by 102 points, the S&P 500 increased 12 points, and the NASDAQ gained 44 points.
Additionally, market breadth was quite positive, as advancers outpaced decliners by a 2.3-to-1.0 ratio. Energy stocks were among the best performers on the day, aided by a nice rise in the related commodities. Meanwhile, health care equities were among the weakest performers on the day.
In commodity news, oil prices rose, as two tanker ships moving through the Strait of Hormuz were attacked. Secretary of State Mike Pompeo blamed Iran, and this signaled an increase in Middle East tensions. Too, this was significant considering a large quantity of oil travels through the strait. Meantime, U.S. Treasury bond yields were lower across the board today, reflecting a flight toward the safe-haven asset. Too, we think this was partially caused by traders speculating on Federal Reserve interest rate cuts. In other news, the VIX Volatility Index traded around breakeven levels, showing that little changed in terms of demand for options protection.
Looking ahead, tomorrow’s slate will be full of economic data. This includes the preliminary University of Michigan Consumer Sentiment Index for June, along with retail sales for May. These reports ought to show how the U.S. consumer is doing. Additional information on businesses, including inventories for April and industrial production for May are also on the docket. Overall, we think much of tomorrow’s session will be driven by news regarding any developments in the U.S.-China trade dispute. - 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 major U.S. equity indexes finished lower yesterday, but much like on Tuesday, the setbacks were quite contained. At the closing bell, the Dow Jones Industrial, Average, the NASDAQ, and the S&P 500 Index, which were in the red for much of the session, were 47, 30, and six points to the downside, respectively. Pushing stocks lower, more so on the international front, were concerns about trade and a sharp cut in oil demand forecasts, which some pundits view as a sign that the global economy is continuing to slow.
On the trade front, the bickering has seen a series of back-and-forth jabs from the leaders of the world’s two-largest economies. The latest salvo was sent by President Trump, who said that he would not strike a trade accord with China until an acceptable deal is negotiated. The President noted that any agreement would most likely have to include the terms that China scoffed at in May when a possible resolution to the year-plus fighting fell apart. The trade uncertainty—and its possible impact on the health of the global economy—has cast a cloud over the equity market for a good portion of the last six weeks. However, unlike in May, it has not resulted in any sizable selloffs of late. Perhaps, traders are holding out hope that progress to a deal may be made later this month with President Trump and China’s President Xi Jinping are expected to meet at the G20 summit in Japan. That event is likely to have a significant impact on the direction of trading leading into the upcoming second-quarter earnings season.
Meantime, the economic news continued yesterday, and it included another benign reading on inflation, which will only add more fuel to the speculation that the Federal Reserve will lower interest rates, possibly as earlier as next month. Specifically, the Labor Department reported that consumer prices rose a nominal 0.1% last month, down from the 0.3% pace seen in April and below the consensus estimate of a 0.2% increase. This helped offset the global geopolitical tensions during yesterday’s bearish trading session. The next important release from the business beat will come tomorrow, when the Commerce Department reports retail sales for the month of May. In general, inflation is not much of a concern right now, given the current price of oil, which ended yesterday’s session on the New York Mercantile Exchange not too far above the $50-a-barrel mark. The U.S. Energy Information Administration slashed its forecast for 2019 world oil demand by 160,000 barrels per day (bpd), to 1.22 bpd, which raised concerns about a forthcoming oil supply glut.
Speaking of crude, the price is moving higher this morning, after reports of explosions on oil tankers in the Gulf of Oman earlier today. Norwegian ship, the Front Altair, was in trouble between the Emirates and Iran, but further details were not provided. Today’s incident comes at a time of heightened geopolitical tensions in the region with United States-Iranian relations deteriorating further after attacks on four tankers off the coast of the UAE last month. This situation bears watching as it could eventually result in oil disruptions in the Middle East.
But with less than an hour to go before the commencement of trading stateside, the stock futures are pointing to a modestly higher opening for the U.S. equity market. On the overseas front, the major bourses are trading in positive territory after a weak showing in Asia overnight. While the futures are pointing to some buying at the start of the trading day on the homeland, it will be interesting to see if the buyers will be able to stay engaged amid the host of international worries right now, headlined by the ongoing trade war with China and the geopolitical tensions simmering in the Middle East. Stay tuned. – William G. Ferguson