After The Close - The U.S. equity markets started off the final day of the week in negative territory, but managed to regain some lost ground late in the session.
The news was relatively light on the economic front. The Commerce Department reported that U.S. retail sales were up 0.5% last month, which was slightly below expectations. On the plus side, the figures for April were revised upward, to a gain of 0.3%, versus the original estimate of a 0.2% decline. Meanwhile, industrial production was up 0.4% in May, slightly ahead of the consensus.
Trade relations between the U.S. and China continued to weigh on investor sentiment. Semiconductor manufacturer Broadcom (AVGO) sent tech stocks lower after cutting its guidance for the rest of the year. The company blamed U.S. sanctions against China-based Huawei Technologies and trade policy concerns on the part of its customers. Meanwhile, fears of a global economic slowdown were rekindled after China reported that its industrial output hit a 17-year low last month.
At the closing bell in New York, the Dow Jones Industrial Average had recouped most of its earlier losses but ended down 17 points. The broader S&P 500 Index closed four points shy of breakeven, and the tech-heavy NASDAQ was down by 40 points. Most of the major market sectors showed losses for the day, with the biggest declines coming from basic materials, technology, and energy shares. On the plus side of the ledger, utilities rose nearly 1%, while consumer cyclicals ended up about a quarter percent.
Elsewhere, oil prices were up, with light sweet crude advancing half a percentage point to about $52.50 a barrel. Concerns over potential disruptions to oil supplies linger following an attack on two oil tankers near the Strait of Hormuz which was blamed on Iran. However, the commodity was down 2.8% for the week, and has fallen 14% over the past month as the outlook for global demand has weakened.
Lastly, the European bourses also had a down day, with Germany’s DAX shedding more than half a percent. London’s FTSE fell about half as much, while France’s CAC-40 declined modestly. – Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The investment community was able to shrug off escalating geopolitical tensions, trade worries, and an unexpected rise in initial weekly jobless claims and push equities higher. After two days of losses—though the moves to the downside were quite contained—the major averages started yesterday in positive territory and never relinquished the gains. At the closing bell, the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index were 102, 44, and 12 points higher, respectively. The biggest move to the upside came from the small-cap sectors, with the Russell 2000 advancing 16 points (or 1.1%).
Overall, the buying was rather broabased during the week’s penultimate trading session. All of the 10 major equity groups finished in the black, save for a minor setback for the consumer staples sector. Yesterday’s leadership came from the basic materials, energy, and consumer discretionary stocks. The latter group should remain on the radars of investors today, with the release of May retail sales figures this morning (see below). The oil stocks got a boost from higher oil prices, which rose off of a five-month low earlier this week on news of oil tankers under siege in the Middle East. U.S. Secretary of State Mike Pompeo said it was, “the assessment of the U.S. government that the Islamic Republic of Iran is responsible for the attacks that occurred in the Gulf of Oman.” Despite rising geopolitical tensions in the Middle East, advancing issues led decliners by a more than two-to-one ratio on both the Big Board and the NASDAQ.
For much of this week, the trading on Wall Street has been pretty contained, with the major averages not moving forcefully in either direction. In general, traders seem to be a doing a balancing act, with the ongoing tensions in the Middle East, the protests in Hong Kong, and the trade dispute between the United States and China being countered by growing sentiment that the Federal Reserve will probably cut interest rates, possibly as early as next month, to support economic growth. Historically, the loosening of the monetary reins by the central bank gives equities a boost. And economic data this week, including only modest gains in both producer and consumer prices and the unexpected rise in weekly jobless claims, will only add to the growing narrative that the Federal Reserve will cut rates this year.
Speaking of the business beat, just moments ago, the Commerce Department reported that the advance estimates of U.S. retail and food services sales for May 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $519.0 billion, an increase of 0.5% from the previous month, and 3.2% above May 2018. Total sales for the March 2019 through May 2019 period were up 3.6%. The May retail sales figure came in at what the consensus expectation was calling for.
With less than a half hour to go before the start of the week’s final trading session stateside, the equity futures are pointing to some selling when the U.S. stock market opens, particularly on the tech-heavy NASDAQ. So far overseas, there has been a bearish tone to trading. The main indexes in Asia, save for Japan’s Nikkei, finished in negative territory, while the major European bourses are in the red as trading moves into the second half of the session on the Continent. We are seeing some move into safe-haven instruments, with demand for fixed-income securities picking up. Given the continued worries about the ongoing U.S./China trade dispute threatening an already weakening global economy and the geopolitical concerns escalating in the Middle East, investors are showing a lesser appetite for risk this morning. Stay tuned. - William G. Ferguson