After The Close - Propelled by the premarket release of a strong February jobs report, which revealed moderated inflation, U.S. equities wrapped up a modestly volatile week with a pronounced rally. Each of the major indexes soared throughout the day, with the NASDAQ setting an intraday trading record. The Dow Jones Industrial Average and S&P 500 were similarly strong, as the former added more than 430 points at the close.
The market sectors were uniformly positive, as well. Financial, industrial, and technology stocks led the charge. The Russell 2000 rose well over 1%, underscoring the all-inclusive nature of today’s upturn, which saw advancing shares outnumber declining issues by a 2.6-to-one ratio.
For most of the past two weeks, concerns over a potential trade war were the source of the market’s volatility. President Trump’s plan to implement tariffs on steel and aluminum imports led to the resignation of chief economic advisor Gary Cohn, and lent itself to broader worries about the economic consequences of the move. Now, with major trade partners Canada and Mexico likely exempt from the tariffs, and the possibility of exceptions for other allies like Australia, the worst fears have been somewhat mollified.
Elsewhere, the recently fraught relationship between the U.S. and North Korea took a surprising turn in the past 24 hours. President Trump is reportedly planning to meet with the leader of that nation, Kim Jong-un, to directly discuss the nuclear issues that have imposed an unwanted dose of uncertainty into trading over the past several months. Even the late day report that the President’s lawyers were open to a meeting the Robert Mueller’s Special Counsel did little to negate Friday’s optimism.
But it was the February jobs update that was the primary driver for today’s running of the bulls. The indexes opened significantly higher on the heels of the report and never looked back. In the filing, the Department of Labor revealed that the country added 313,000 new positions last month, well above the consensus estimate for a 205,000 expansion. An upward revision to January’s mixed report also supported the session’s bullish tone. For the fifth straight month, unemployment remained near 4.1%.
Meanwhile, U.S. crude oil surged more-than 3% higher today. The upturn comes after two days of losses, so traders were probably taking advantage of attractive prices amidst the broad-based optimism. Still, concerns about domestic production levels will continue to have a bearish impact on sentiment here. The U.S. Energy Information Administration increased its forecast for the nation’s quarterly crude output yesterday, which would serve to partially offset optimism stemming from OPEC’s drilling accord.
Looking forward, we expect subsequent speculation about the Federal Reserve’s monetary policy to reemerge early next week. But slower-than-expected wage growth in February ought to negate any immediate widespread correction to today’s gain. Stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Hopes that the President's much-discussed and debated tariff adjustments would be softer than earlier feared helped the stock market to recover late Wednesday and to start the session yesterday morning to the upside. In all, after the first minutes of trading, the Dow Jones Industrial Average was up by almost 150 points, for an aggregate turnaround of some 450 points from the lows of Wednesday morning. However, that early burst of buying could not be sustained, and all of the Dow's initial gain had been erased within an hour, before the market would get a minor second wind.
Specifically, the bulls hope that the United States will opt to more than temporarily exempt Canada and Mexico from the proposed levies on steel and aluminum. This would be no small matter as these two nations export a lot of steel to our country--especially Canada. In the meantime, with earnings in the rearview mirror, the economy still on the mend, and the Federal Reserve's meeting nearly two weeks away, there is a news vacuum of sorts. And the tariff issue has moved into the spotlight. How much of an impact tariffs will have on the economy is an open question, at this point.
As to the suggested exemptions, the President is reportedly willing to consider them as part of an agreement to revise the North America Free Trade Agreement, or NAFTA. As to the economy, the latest session saw data showing an increase of 21,000 in weekly jobless claims. That put the unemployment total up from a recent 48-year low.
Also of note, the medical services and insurance giant Cigna (CI) has announced plans to acquire pharmacy services provider Express Scripts (ESRX) for $67.50 a share. Express Scripts stock soared on the news jumping out to about a 12% gain during the morning's euphoria.
Meantime, the comeback rally gained some momentum as the morning moved toward its conclusion. But as the afternoon began, the selling resumed, sending the Dow to losses of close to 100 points. But the real casualties were the smaller-cap composites, even though Treasury yields softened, with the 10-year Treasury note's return easing to 2.87% in the afternoon. Meanwhile, the market's resolve stiffened once again as we reached the mid-afternoon, with the large-cap indexes all going positive, if grudgingly. The rally, though, soon picked up steam, and as we reached the final hour of trading, the Dow had pushed up to near session highs.
Then, shortly before the market closed, the President said he was set to sign proclamations levying tariffs on steel and aluminum, but exempting Canada and Mexico. The tariffs are to take effect in two weeks. He said he would give other nations to opportunity to justify why they should not be included. As to the United States’ neighboring countries, the President said the exemptions would not be open ended, but would depend on whether the changes to NAFTA that he seeks are applied. The tariff expectations had led to the market's rebound, which largely continued in to the close, with the Dow adding 94 points and the NASDAQ climbing 31 points.
Now, we are about to begin the final day of a hectic week, and after gains in Asia overnight on news that the United States and North Korea would soon talk over their differences and modest improvement in Europe so far this morning, the U.S. Labor Department has issued its February payroll report. In it, the government reported that the nation had added much better than expected 313,000 new jobs last month; an increase of 205,000 had been the forecast. In January, 239,000 new positions had been created. That was an upward revision from the 200,000 new payrolls initially estimated. At the same time, the U.S. unemployment rate held steady at 4.1% last month, the fifth straight unchanged reading. In the meantime, average hourly wages rose by $0.04 in February. That was less than expected and thus welcomed by Wall Street, which suddenly fears an upward push in inflation. In fact, strong wage growth has been a worrisome development for the market and contributed heavily to a selloff in equities earlier last month when the figures for January were released. The obvious fear is that the Federal Reserve will look at the recent spike in wages and accelerate the pace of its monetary tightening. Now, perhaps that fear is lessening. In fact, the Street has taken well to the jobs report, and equity futures point to a very strong opening for the stock market, with the Dow expected to surge some 150 points at the open. - Harvey S. Katz, CFA