After The Close - Equities got off to a soft start this morning, but managed to firm up nicely as the day unfolded. At the end of trading, most of the major stock market averages were up over 1% for the session. Specifically, the Dow Jones Industrial Average was ahead roughly 337 points; the broader S&P 500 Index was up 30 points; and the NASDAQ was higher by 73 points. Market breadth was supportive, with winners well ahead of losers on the NYSE. All of the major market sectors managed to advance, with notable leadership in the technology and financial issues. While there were no truly weak stock market sectors today, many of the telecom names lagged the broader averages.
There were very few economic reports posted this morning. However, the ISM Non-manufacturing Index came in at 59.5 for the month of February, which was slightly better than had been anticipated. Tomorrow, factory orders for the month of January are due to be released. Looking ahead to the end of the week, on Friday, the government will deliver its monthly employment report. Traders will likely pay close attention to that issuance, especially given the ongoing interest in the Federal Reserve’s monetary policy.
In the corporate arena, it was a somewhat light day. However, there was some M&A news to report. Specifically, financial giant AXA has agreed to acquire XL Group (XL), sending that stock sharply higher.
Technically, the stock market has been quite choppy lately. Today’s move puts the S&P 500 Index closer to, but still below, its 50-day moving average, located at the 2,735 level. It remains to be seen if the bulls can push stocks back above this key technical level. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The volatility that was so prevalent at the early stages of February returned over the final days of last month and spilled over into first few trading sessions of March. It made for a bearish five-day stretch of trading on Wall Street last week, punctuated by rather notable intra-day declines on both Wednesday and Thursday. The five-day stretch was not a complete loss, though, as the major averages started the week nicely to the upside and rebounded on Friday after the dour mid-week performance and a difficult start to the week’s final day. Indeed, it was looking like another big setback on Friday, with the Dow Jones Industrial Average off more than 300 points at the opening bell, but the bulls were able to pare and, in most cases, retrace the deep initial losses by the closing bell. The index of 30-bellwether companies finished the session down just 71 points. The Dow Jones Industrials were the lone laggard, as the tech-heavy NASDAQ, S&P 500 Index, and the Russell 2000 recovered from the early setback and stormed back into positive territory, finishing 77, 14, and 16 points, respectively, to the upside. Still, for the week, the Dow 30, NASDAQ, S&P 500 Index, and the Russell 2000 were down 3.0%, 1.1%, 2.0%, and 1.0%, respectively.
As noted, it was a very volatile five-day stretch, with the S&P 500 Volatility Index (or VIX), also known as the “fear gauge,” climbing 19% last week. There were a few reasons why the bears were emboldened, not the least of which was a more hawkish stance by new Federal Reserve Chairman Jerome Powell in his prepared remarks and testimony before Congress last Tuesday. The Fed leader said that the economy was strengthening and should be able to withstand three to four interest-rate hikes this year. Talk of monetary tightening is typically not greeted kindly by Wall Street—and that certainly was the case once again last week. Then on Thursday, Wall Street was spooked by news that the Trump Administration will place tariffs on aluminum and steel imports. There is a fear that the protectionist move will disrupt some of the good things happening in the U.S. economy, by making raw materials—along with the recent uptick in inflation—more expensive for manufacturers and builders.
Speaking of the economy, most of the news was positive again last week. Although the latest revision of fourth-quarter GDP estimate—from 2.6% to 2.5%--was slightly disappointing, it was expected. And a good deal of the other data were encouraging, including strong readings on consumer confidence, consumer sentiment, and manufacturing activity. These reports suggest that the economy will remain on the uptick in the coming quarters. This week, the news from the business beat will remain a focus for investors, with the much anticipated report on February employment and unemployment due on Friday morning at 8:30 A.M. (EST). Recall that the report from the labor market last month, which showed a spike in the average hourly wage, brought concerns about inflation and resulted in a massive intra-day selloff of 666 points on the Dow and two 1000-point declines in subsequent trading sessions. Also this week, investors will be interested in the latest figures on nonmanufacturing activity and the international trade gap, and the Federal Reserve’s Beige Book summation of economic conditions. On the earnings front, the news will be light, with the exception of some quarterly results from the retailers that have fiscal years ending in January.
Looking at the international markets, the main indexes in Asia were lower overnight, while trading is higher so far today across the pond. There was some notable political news from the Continent this morning. Specifically, elections in Italy, the euro zone’s fourth-largest economy, did not return a majority to any single party. But the Eurosceptic, populist movement, was the biggest single party winner with a third of the vote. Against this backdrop, forming a government could take weeks of negotiations and coalition building. Investors will probably keep a close eye on this situation, given that nation’s financial struggles in recent years.
Meantime, with less than a half-hour to go before the commencement of trading stateside, the equity futures are presaging some modest selling at opening for the U.S. equity market. Stay tuned. - William G. Ferguson