After The Close - After two days of strongly bullish action, the markets started trading quite choppily today, as the indices moved between the red and the black several times in the first portion of the session. We think this was partially caused by profit taking and traders being wary of taking on new positions ahead of Friday’s employment report. During the morning hours, the Dow Jones Industrial Average and S&P 500 hovered not too far from yesterday’s closing prices. However, the indices started to move higher in the latter part of the day. This was partially attributable to the announcement that talks with Mexico were developing nicely; the U.S. State Department stated that it had a very good discussion, and that talks would continue later tonight. This accelerated a move upward, and the markets followed this new direction until just before the close. The Dow was higher by as many as 261 points at one time, and the S&P 500 was up by about 26 points. Still, the markets tapered off in the final few minutes of trading. All told, the Dow closed higher by 181 points, the S&P 500 was up 17 points, and the NASDAQ gained 40 points.
Additionally, market breath was somewhat positive, as advancers outpaced decliners by a 1.6-to-1.0 ratio. Energy stocks were among the strongest performers on the day, aided by a move in the related commodities. On the other hand, REITs were among the weakest, though only on a relative basis.
In commodity news, oil prices were stronger today, as traders thought lower interest rates leading to a healthier economy would stoke demand. Meantime, U.S. Treasury bond yields were higher across most issues, as a move from the safe-haven asset occurred. Still, the three-month yield was lower, reducing the level of inversion with most long-term rates. Too, the VIX Volatility Index was down slightly, as demand for options protection fell.
Looking ahead, a significant amount of economic news is slated for release tomorrow. These include the unemployment rate and nonfarm payrolls for May. Further, wholesale inventories and consumer credit for April are expected. These will show how the broader economy is doing, and may provide some insight into the Fed’s upcoming monetary decisions. Meantime, the earnings docket is much more barren in comparison. Overall, we think that the markets will trade on any news concerning the trade dispute with China and any outcome regarding tariffs on goods from Mexico. - 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 clearly put on a rousing performance on Tuesday, following a weak May, on hopes for a détente in trade with China and Mexico and expectations that the Federal Reserve, concerned about a possible faltering in our nation's economy, would go ahead and start reducing interest rates later this year. That upbeat combination helped the Dow Jones Industrial Average climb back above 25,000 with an advance of more than 500 points. The S&P 500 also gained better than 2% on the day, thus producing the equity market's biggest one-day surge since January 4th of this year. And there was more good news to come yesterday.
Specifically, as the morning got under way yesterday, we saw fresh gains, especially on the Dow, which held a better than 150-point advance for much of the morning. The other large-cap indexes also fared well. The major reason for the back-to-back strong stock market showing was the hope that the Fed would eventually cut interest rates. In fact, a majority of Fed watchers now expect the central bank to lower rates by its mid-September FOMC meeting. Some also expect a further cut by the December get together. As a result, stocks are rallying anew after retreating badly last month.
Meanwhile, after big gains on Tuesday, the tech group was surging again yesterday, with shares of Apple (AAPL – Free Apple Stock Report) leading the way higher after the iPhone maker's CEO said that the company had not been targeted by China despite the growing antipathy between the two nations. Also, of note, Fed Chair Powell said earlier in the week that the bank would be keeping an eye on the economy with the idea of ensuring that the long business expansion was sustained. And that would suggest that rates cuts are coming sooner rather than later. Now, with hopes for the Fed high, the bank will need to deliver.
As to the stock market, the solid advance yesterday morning would continue into the early afternoon, with the Dow maintaining a 100-150-point advance through the first half of the trading session. That solid showing came even though Automatic Data Processing (ADP) reported that private payrolls had increased by just 27,000 in May. Expectations had been for a net jobs gain of 173,000. That was the weakest ADP jobs report in more than nine years. Please note that this Friday morning, the U.S. Labor Department will issue its monthly survey on U.S. payrolls. Last month, the nation added 263,000 jobs; the current forecast is for 180,000 new positions.
None of this natural angst seemed to matter much for investors who continued to buy stocks into the early and mid-afternoon, as the averages continued to race to higher highs. In all as we entered the final two trading hours, the Dow was up close to 200 points and the NASDAQ was better by 40 points. Moreover, the Russell 2000 small-cap benchmark and the S&P Mid-Cap 400 also were higher after having been in the red earlier in the day. So, there seemed to be no rethinking of the prior session's big gains. The solid uptick then would continue into the final hour of trading.
The market would then close at session highs, with the Dow surging by another 207 points, for a two-day run of some 720 points. The S&P 500 would add 23 points and the NASDAQ would climb 48 points. Only the small-cap Russell 2000 would retreat, but just slightly. As to the day ahead, after a mixed session in Asia overnight, the major bourses are rising in Europe so far this morning. In the meantime, oil prices are up and Treasury note yields, up slightly yesterday are now lower so far this morning. Finally, a day ahead of the Friday jobs report, the U.S. equity futures are showing early gains. – Harvey S. Katz, CFA