After The Close - The stock market started trading modestly lower today, as China reduced its target growth rate for 2019. This suggested that an economic slowdown is becoming more noticeable in that country. That news caused the Dow Jones Industrial Average to drop by as many as 94 points in the early morning, while the other indices fell in tandem. However, good economic news in the U.S. caused the indices to rebound modestly. On point, the data included the ISM non-manufacturing index, which showed a stronger-than-expected number for February. Too, new home sales hit a seven-month high, rising 3.7% in December. In all, the markets moved slightly above breakeven for a time. Still, this advance was somewhat short lived, as the indices slid some in the final hour of trading. Overall, the Dow closed the day lower by 13 points, the S&P 500 was down three points, and the NASDAQ slipped one point.
Additionally, market breadth was rather neutral, not favoring the advancers or decliners by a large margin. Communications and real estate equities were among the best performers on the day, with the latter spurred by the strong new home sales report. On the other hand, energy stocks were among the weakest during today’s session.
In commodity news, oil prices finished about even today, after falling early in the session based on weaker worldwide demand projections. In addition, the U.S. Treasury bond yield curve flattened some, as near-term rates were moderately higher and long-term rates were modestly lower. This is often a negative outcome for bank earnings, as they borrow short and lend long. Lastly, the VIX Volatility Index was slightly lower, as demand for option protection fell some.
Looking ahead, a good amount of economic news is expected tomorrow. The Energy Information Administration’s weekly status report on oil inventories is set to be released. In addition, the international trade deficit for December is expected. Meantime, several companies, including a few retailers, are slated to report quarterly results both before and after the bell. Still, all eyes will be on any developments concerning a potential trade deal between the U.S. and China, as we also await Friday’s jobs report. - 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, on a virtual tear the first two months of this year, on optimism that the Federal Reserve will pursue a patient monetary approach and that the United States and China will broker a mutually satisfactory trade deal, then pressed forward solidly this past Friday, and followed up that cumulative strength with an impressive opening yesterday. The latest gain came on news of growing expectations that a trade deal soon will be put into place with China. So, the Dow Jones Industrial Average quickly sped ahead by more than 125 points.
However, it was the NASDAQ that really led the way early, with that composite quickly advancing almost 50 points. Alas, though, this would prove to be a brief move higher, unlike many other past gains. Indeed, as we closed in on the two-hour mark of trading, the major averages had all moved lower, and more than incrementally, with the Dow shedding over 60 points for a nearly 200-point negative swing. Economic news showing that construction spending had dropped in the latest survey was one factor dragging down stocks.
Meanwhile, unlike most previous sessions this year, the market didn't take an initial hit and come right back. In fact, as the morning ended and the afternoon commenced, the pullback intensified, with a serious setback under way by 1:00 PM (EST). At that time, the Dow, which plunged between 11::00 and noon, fell to a loss of 400 points. The deficit in the NASDAQ approached 100 points. In addition to the worrisome economic news, there was some concern that the expected trade deal with China would not be all encompassing.
The major mid-session reversal might also reflect the slight possibility that no deal could yet arise from the current talks with China at all, although our sense is that such a position might be too pessimistic. What does seem likely is that some accord will be reached in the coming weeks. For now, though, it is another day of hope, but no definitive progress and certainly no written agreement. And with the market on a bullish run of significance leading up to the setback yesterday, there was some tendency to take profits.
And that inclination to sell continued as we moved further into the afternoon, with the Dow soon falling by more than 400 points. After that further selloff, the market steadied itself, so that as the afternoon proceeded, stocks began a slow snapback. In all, after bottoming out with a Dow loss of 415 points at about 1:00 PM, the market began a grudging recovery, that would about halve the worst deficits of the day. All told,, the Dow would rebound from a 415-point side, to close off by 207 points.
Elsewhere, the S&P 500 Index, which had rebounded to above 2,800, fell back to a loss of 11 points, while the tech0-heavy NASDAQ, once down by almost 95 points, would close off just 18 points. So, there was still a good-sized comeback brought about in large part because there was not a lot of hard economic news to worry investors. So, the bears could not mount a full-fledged retreat. Now, today, the ISM will report on non-manufacturing activity. That data, out some 30 minutes into today's session, could be a market mover.
But the major economic news story this week figures to be Friday's release of the employment data from the Labor Department. That projected increase, if large enough, could again start to worry the Federal Reserve watchers. For now, though, the bulls will try and see if yesterday's market selloff was a one and done affair. Looking ahead to the new day now, we see stocks were mixed in Asia overnight, while in Europe, the bourses are fairly flat. Elsewhere, oil prices are flat, too; Treasury yields are slightly higher; and the U.S. equity futures are gaining a bit. – Harvey S. Katz, CFA