After The Close - Friday’s trading was mixed-to-negative, with the major indexes falling sharply in the morning hours before paring losses as the session wore on. With a dearth of economic releases on the docket, traders were mostly focused on the ongoing earnings season and, more notably, developments from Washington as it relates to tax reform. This led to a slightly bearish tilt to market breadth, dragging large-cap equities lower despite a minor bounce back in smaller issues. Accordingly, while the Russell 2000 surged higher, none of the major indexes were able to advance meaningfully past their breakeven lines.
One of the primary drivers of this year-old rally, the prospect of tax reform has become a bit murkier in recent days. Yesterday’s proposal from the Senate called for corporate cuts to come a year later than the outline laid out by House Republicans. As next year’s midterm election season approaches, we expect investors’ desire for the implementation of this cornerstone policy to grow.
Corporate earnings have come in roughly 8% higher on average, though investors processed a string of releases in the retail sector. JC Penney (JCP) got the category off on the right foot today, outpacing same-store sales expectations. The department store chain’s stock advanced about 15% on Friday, while competitors Nordstrom (JWN), Macy’s (M), and Kohl’s (KSS) delivered markedly more-mixed performance data. The latter two saw their shares climb higher, as investors take advantage of reduced valuations ahead of the winter holiday season.
Meanwhile, while domestic crude oil slipped slightly lower today, the value remains near recent highs. Resilient optimism for OPEC-led cuts to production, coupled with the expectation that demand trends will accelerate in 2018 has propped up the equity market in recent months.
So, though this week saw the indexes pulled back from their all-time highs, we believe earnings-related optimism can spur another strong effort by the bulls next week. However, as the debate over tax reform intensifies, we also expect equities to face some selling pressure in the coming weeks. - Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
12:00 PM EST - The U.S. equity markets began the day on the downside, and largely trended lower as the morning session wore on.
Things are quiet in terms of economic news today. On that front, the University of Michigan’s consumer sentiment index dipped slightly in November, but was still near its highest levels of the last 10 years. This at least suggests that perhaps buyers will be in an upbeat mood as the important holiday shopping season quickly approaches.
However, most of the market’s attention appears to be focused on political wrangling over tax-cut legislation. In particular, the proposed plan released from the Senate yesterday called for corporate tax cuts to come in a year later than the bill put forth by House Republicans. Along with other stimulus measures advanced by the Trump Administration, this year’s market rally has also been fueled by hopes of a tax overhaul that would boost company profits and potentially provide a lift to the economy.
As we approached the noon hour of trading in New York, all three of the major indexes had bounced off of their low points for the session, but remained in the red. The Dow Jones Industrials were down 45 points while the broader S&P 500 was off by five. Should those numbers hold, it would mark the end of an eight-week winning streak for both indexes. Meanwhile, the tech-heavy NASDAQ, which has advanced for six straight weeks, was down six points.
Most of the 10 main market sectors were in the red, with the worst showing coming from healthcare stocks, which were down more than three-quarters of a percentage point. Utilities and energy issues were off a little more than half a percent. It wasn’t all bad news however, as consumer cyclicals and noncyclicals, along with telecommunications issues, had eked out modest gains.
Trading in the European bourses got off to a positive start, but soon succumbed to bearish sentiment. Britain’s FTSE 100, Germany’s DAX, and France’s CAC-40 were all down about half a percentage point in late-day trading. – Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell - After back-to-back-to-back unimposing trading sessions to begin the first full week of November, Wall Street got off on a decidedly bearish note yesterday morning. On point, the Dow Jones Industrial Average, an indifferent performer during the aforementioned first three sessions of the week, quickly tumbled by 150 points in the wake of a broad selloff in the technology sector. Wall Street also had to digest a mixed batch of corporate earnings issuances, as reporting season, now in its final stages and still a very good one, on balance, continues to have some noted outliers.
The focus on earnings meantime, is clearly understandable this week, as economic issuances have been limited after a very busy week during the preceding five-day span. Also, not surprisingly, given the weakness in technology, the NASDAQ fell even more sharply, losing 75 points, or well over 1%, early on. That was considerably more than the 0.6% decline in the Dow at the morning's low point. As to the tech sector, recent gains have left this high-profile, but often volatile, category rather extended, and clearly ripe for some retracement. And that is precisely what we saw yesterday morning.
Meanwhile, stocks around the globe also fell yesterday, likewise helping to set the stage for a markedly weaker start on this side of the Atlantic. The world's stock markets have risen this year alongside the U.S. equity market. So, we were ready for some profit taking. Still, after a woeful start, the market did try to come back. But that uptick, which was half-hearted, at best, never really got going or lasted very long. In fact, as we headed into the early afternoon, the market fell further, basing out with the Dow plunging to an intraday loss of just over 250 points.
The stock market then attempted to pare its large losses, which appeared to have been brought about by a report that the Senate, which will soon weigh in with its own tax reform measure, would delay a tax adjustment until 2019. The House bill would take effect much sooner. That report, if true, would likely lead to further selling. The report had come out after the morning recovery attempt. Then, the market attempted a second comeback on the day. This time, there was more success, as the Dow's deficit was more than halved as we reached the final 90 minutes of the trading day.
The equity market then drifted about at lower levels, albeit well off of the session worst numbers into the close. In all, the Dow, off the aforementioned 250 plus points during the middle of the trading day, came back nicely by the close, ending matters off by 101 points. The other averages staged recoveries, as well, with even the NASDAQ, once off about a hundred points, climbing much of the way back to finish off a more manageable 39 points. Still, most of the 10 leading sectors fell on the day, with basic materials and technology suffering the most, while declining stocks easily led gaining issues on the NYSE.
Now, after this moderate setback stateside yesterday, stocks were lower in Asia overnight, while in Europe, the leading bourses are tracking downward, as well, so far in early trading. In other markets, oil is trading a little lower, while Treasury yields, up a bit yesterday, are now climbing further. In economic news, a key consumer sentiment reading from the University of Michigan will be out just before 10:00 AM (EDT). Finally, U.S. equity futures are off rather sharply in early dealings. - Harvey S. Katz, CFA