After The Close - Stocks on Friday displayed little of the volatility that unsettled investors on a number of occasions this year. The calmer trend is welcome, since it probably indicates the focus is more on the economy and earnings. There could still be disruption from international trade disputes, rising interest rates, or global tensions, as has occurred in recent months. But the shift away from fixating on those anxieties allowed stock indexes to regain lost ground this week.
Trading today ended with the bulls mostly in charge. The Dow Jones Industrial Average gained 92 points; the S&P 500 was up almost five points; but the NASDAQ slipped a couple of points. Market breadth was positive, with advancing issues moderately topping decliners on both the New York Stock Exchange and the NASDAQ. Many more stocks reached fresh 52-week highs, in a sign of the comeback for stocks over the past several days.
In terms of sectors, tech shares, including market leader Apple (AAPL – Free Apple Stock Report) gave back a portion of the gains achieved earlier this week.
Energy stocks fared better on prospects that higher oil prices will boost profits in the months ahead. In fact, crude oil quotations were a bit lower today, but remained above $70 a barrel. That is a higher level than had been expected, driven by strong global demand, OPEC output restrictions and, most recently, concerns that new sanctions on Iran will crimp supplies.
U.S. consumers are already paying higher prices at the pump. The national average for a gallon of regular unleaded gasoline is up to $2.86, according to AAA travel. That compares to $2.66 a gallon a month ago and $2.34 a year earlier. The trend suggests that the national average could top $3.00 a gallon over the summer. Even so, that would be a far cry from the $4.11 peak in 2008.
Healthcare stocks were also in the news, as President Trump spoke about reducing prescription drug prices. The sector shrugged off any possible negative implications and moved higher, though, perhaps because of the complexities of the situation and the long lead times involved. The thinking seems to be that it will be difficult to enact highly restrictive policies.
As for the broader picture, the New York Federal Reserve said it expects second quarter GDP to come in just under 3.0%. That suggests the economy is on track for solid performance, which could add support for corporate profits. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Boosted by a follow-up benign release on inflation, the stock market got out of the gate strongly again yesterday and was able to fashion a wire-to-wire win for the bulls. On point, after a report was issued Wednesday affirming that producer (wholesale) inflation rose just nominally in April, the Labor Department followed that issuance with figures showing that the companion Consumer Price Index had gained just 0.2% last month. Expectations had been for a rise of 0.3%. Moreover, when we back out the volatile food and energy components to get the so-called core CPI, we see the increase was only 0.1%.
The CPI data affirmed that inflation was up by a modest 2.5% over the past 12 months and by just 2.1% for the core component. Such figures, coming on top of the prior day's muted PPI report, should allay some fears that the Federal Reserve will accelerate its monetary tightening schedule to dampen inflation. So, stocks rose at the open and did not look back. To be sure, inflation fears linger, especially as oil prices continue to surge ahead, with Nymex crude in New York rising past $71 a barrel in dealings yesterday morning. Should that uptrend persist, and our country's exit from the nuclear pact with Iran may foster this, oil could gain further.
Still, for now, the bulls have the wind at their backs. Also helping yesterday, was a welcome drop in bond yields, aided by the muted data on pricing. Specifically, one day after yields on the 10-year Treasury note climbed to just past 3.0%, they eased to 2.96% in the morning. The modest inflation number, as noted, allayed some hawkish fears on pricing. But we caution that with oil soaring past $70 a barrel, we could see a more vigorous increase in both the PPI and the CPI next month. For now, though, the bears are on the defensive. As to interest rates, market expectations for rate hikes in June and September are 100% and 76%, respectively.
The bigger question is December. There, for example, recent thinking has the odds of a fourth hike in 2018 (there had been one in March) at just about 50%. Meanwhile, in other news, the Labor Department reported that initial jobless claims had remained near a half century low at 211,000. Elsewhere, earnings continue to come out and these have been pleasing for the most part. Finally, as we look ahead to today's session, we're scheduled to get the University of Michigan's reading on consumer sentiment, in which a relatively flat result is the general forecast.
Meanwhile, the advance strengthened as we moved into e afternoon, with the Dow climbing to a session-best gain of 250 points on those lessening inflation concerns Strength in a Dow energy giant, Exxon Mobil (XOM – Free Exxon Stock Report) also helped. Technology shares also aided the uptick, with Apple (AAPL – Free Apple Stock Report) climbing past $190 a share for the first time ever. Other large tech issues also participated. Then, as we moved inside the final two hours of trading, the market gave some of these gains back for a time, with the Dow's advance momentarily halved before some stability returned. The easing off in the NASDAQ was less pronounced.
The market's strength persisted into the final hour, with the major indexes all holding near session highs in a broad-based rally that continued into the close. Encouragingly, some recently out-of-favor groups joined the rally that eventually would lift all of the 10 key market sectors into the black, with the best showings in basic materials, technology, and, interestingly enough, and the utilities. Also, rising stocks held a lead of better than two-to-one on the NYSE in an all-encompassing rally that was underpinned, as noted, by a tame inflation reading and a dip on bond yields. At the close, the Dow would be up 197 points and the NASDAQ 65 points.
Looking out now on the final trading day of the week, we see that the key indexes across Asia were mostly higher in overnight trading, while in Europe, our first look at the early action reveals a slightly lower tide. Also, oil, up significantly in recent days, is now gaining further on fears of tightened supplies in early trading, while Treasury note yields, which ended matters at 2.97% yesterday, are currently at 2.96% ahead of some Federal Reserve speakers. As to the stock market on this concluding day of a very bullish week, thus far, futures are suggesting a higher opening when trading resumes a bit later this morning. - Harvey S. Katz, CFA