After The Close - The stock market started out trading lower this morning, largely due to a slew of weaker economic data, reduced expectations for a good trade outcome between the U.S. and China, and some profit taking after yesterday’s bullish run. News that a noted trade hawk will attend the meeting between President Trump and Chinese President Xi hurt sentiment, as well. The Dow Jones Industrial Average fell around 160 points in early action, while the S&P 500 lost around 21 points. However, the indices started trending higher, as news broke that further tariffs may be suspended in order to facilitate trade talks between the two nations. The markets climbed higher still, once the Fed’s November meeting minutes became public. These documents pointed to a December rate hike. However, the Fed’s worries about tariffs and the current strength of the economy have increased. This may cause interest rate hikes to slow in 2019. Still, the market tailed off at the end of the day. Overall, the Dow closed off 28 points, while the S&P 500 lost six points.
Meantime, market breadth was narrow, as advancers and decliners were about even. Energy and materials stocks were among the best performers, helped by increased commodity prices. On the other hand, financials and technology stocks fell.
In commodity news, oil prices rose throughout the course of the day on news that Russia would consider cutting its output alongside production cuts from other OPEC nations. This caused a rebound in energy-related stocks. Meantime, the VIX volatility index shot higher in early market trading, but closed up just narrowly.
Additionally, economic news was weaker, which partially drove early trading lower. Initial jobless claims reached a six-month high of 234,000, which augurs poorly for economic growth. In other reports, consumer spending rose 0.6% in October, but the data showed slower business equipment spending. Meantime, pending home sales fell 2.6% in October, showing some renewed weakness in the housing market.
Looking ahead, a lighter day of economic news is expected tomorrow, as the Chicago PMI for November is expected to rise to 58.5. In addition, few earnings reports are slated for release, suggesting much of the trading will hinge on the G-20 meetings. - 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 - Wall Street, coming off back-to-back wins for the Dow Jones Industrial Average to start the week, sought to make it a three-peat in trading yesterday. And it began the day with solid hopes in that direction, as the 30-stock composite roared out to strong early gains on hopes that Federal Reserve Chair Jerome Powell would be striking a dovish tone in a speech during the day. Hopes that a trade deal, or at least a truce, could be hammered out between the United States and China also aided sentiment in the early going. The other large-cap averages also did well in the session's formative stages, while the small- and mid-cap indexes again lagged.
In all, the Dow jumped off to a gain of better than 200 points in the first few minutes of trading. However, that composite would soon back off somewhat, for a brief spell, but retain a leadership position. Modest early increases also would be fashioned by the S&P 500 Index and the NASDAQ, while the Russell 2000 again would falter. Expectations of a more conciliatory tone from Mr. Powell (which would be realized) followed by one day a dovish stance from the Fed Vice Chair, Richard Clarida. The central bank is widely expected to raise interest rates for a fourth time this year when its FOMC meets next month.
Also of note yesterday was a seeming easing in trade worries, after a report was published in a leading newspaper indicating that the President was worried about the impact of a long trade war with China on the markets and the economy. Still, there were reports that he would not be delaying the imposition of large tariffs on that developing nation. The Administration's chief economic advisor, Larry Kudlow, had lessened trade concerns on Tuesday when he suggested that the Administration had resumed discussion with China's government officials.
In other news yesterday, the Bureau of Economic Analysis released figures showing that third-quarter GDP had increased by 3.5%. That was the first revision for this period and showed no change from the report issued last month. One more GDP tally for the third quarter will be issued next month. Our sense is that fourth-quarter GDP, which will be out in late-January, will show an increase of less than 3%, as the hectic pace of economic output begins to slow. Meantime, the market's advance strengthened a bit again after a brief pause, and as we headed into the noon hour in New York, the Dow's advance was once more surpassing 200 points.
Then, the market suddenly took off, as the Fed Chair intoned in a speech that the central bank was already near a neutral monetary stance, rather than well behind the curve. Those were similar sentiments voiced the day before by the Fed Vice Chair. So, the Dow surged to a gain north of 450 points in a matter of minutes. The other indexes joined in on the festivities. Things would get even better for the bulls from there, with all groups, including the heretofore laggard smaller-cap indexes, headlined by the Russell 2000, climbing in concert.
The buying then would continue into the close, with a final burst of buying leaving the averages all at session highs. As the final bell sounded, the Dow Industrial would be up by an eye-catching 618 points; the S&P 500 would add 62 points; and the NASDAQ would gain 209 points. The Dow, in jeopardy of falling below 24,000 just days ago, now is up at 25,366 and climbing. Not surprisingly, the breakdown showed many more advancing than declining stocks. In all, the one-two punch of a dovish Fed Chair and the potential for a trade truce with China gave the bulls all they could want--for one day at least.
Looking out at a new day and glancing over to Asia following yesterday's fireworks on our shores, the markets were mixed in the overnight. In Europe, meantime, the principal bourses are now higher in early action. Also, yields on the 10-year Treasury note, which eased to 3.04% late yesterday on those dovish Fed remarks are now passing hands at 3.01%. Finally, the U.S. equity futures are now suggesting a pullback when trading resumes later this morning. – Harvey S. Katz, CFA