After The Close - The stock market started in the red today, as doubts crept in about the Phase I trade deal between the U.S. and China. A news report stated that China wants another round of talks before signing to iron out a few key details. The market had risen considerably last Friday due to the traders' belief that a deal had been finalized, so this uncertainty hurt sentiment. The Dow Jones Industrial Average was down by as many as 67 points, while the other indices were down in tandem. However, sentiment improved after the initial move down, and the composites moved slightly into the green. The Dow was up by as many as 58 points, and the market moved higher in general. The rest of the day could be characterized by choppiness ahead of tomorrow’s earnings reports. Overall, the Dow closed down 29 points, and the S&P 500 was lower by four points.
Additionally, market breadth was slightly negative, with decliners outpacing advancers by a 1.3-to-1.0 ratio. Financial stocks were among the best performers on the day, as traders bought ahead of a slew of earnings results slated for tomorrow. On the other hand, materials equities were among the weakest performers.
In commodity news, oil prices fell on the day, as sentiment declined for global demand. Meantime, the bond market was closed today due to the Columbus Day holiday. The VIX Volatility Index was today, as demand for options protection fell a bit.
Looking ahead, tomorrow will have some economic data released, including the Empire State Manufacturing Survey for October. Also, earnings season starts in earnest tomorrow. Several financial companies are slated to report third-quarter results, including Dow components Goldman Sachs (GS - Free Goldman Sachs Stock Report) and JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report). Additionally, some health companies, including Johnson & Johnson (JNJ - Free Johnson & Johnson Stock Report) and United Health (UNH - Free UnitedHealth Stock Report), are also on the docket for quarterly results releases. Overall, we think the start of the earnings season will drive some of the focus away from U.S. trade negotiations with China. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell - It was another wild week of trading on Wall Street, but unlike the previous five-day stretch when the bears finished ahead, the most recent span went to the bulls. The rally at the end of last week helped the market overcome some early week selling and then some. The direction of trading was mostly be driven by trade news over the five days, as we noted would likely be the case at this time last week. The late-week surge, which saw the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 Index rally to the respective tunes of 320, 106, and 32 points on Friday, was fueled by optimism that the United States and China may be close to reaching a partial trade deal that would end some of the 18-months-plus bickering.
Then on Friday afternoon, news surfaced that the two superpowers had reached a partial trade accord that may help ease some of the trade tensions (the U.S. announced that additional tariffs scheduled to go into effect on October 15th would not) and lay the groundwork for a broader deal down the road. This first phase calls for China to agree to some agricultural concessions and for the U.S. to offer some relief on tariffs. The President said he expects this will have a positive impact on the U.S. farming industry and the companies that produce farm equipment. Not surprisingly, the basic materials and industrial sectors provided the leadership among the 10 major equity groups, all of which finished well above the neutral line on Friday. President Trump, in a joint press conference with his lead trade negotiators and China’s Vice Premier, revealed that the two countries have agreed in principal to a partial deal and hopes to sign it within the next four weeks. The President also seemed very optimistic that a large deal can be struck in the future.
The news of an agreement in principal on a partial trade deal will be on the minds of investors this week and ahead of the unofficial commencement of third-quarter earnings season tomorrow morning with the release of quarterly results from JPMorgan Chase (JPM – Free JPMorgan Stock Report). It will be interesting to see if the leader of the financial services companies, including JPM’s Jamie Dimon, offer commentary on the partial trade agreement reached on Friday. The President and his economic advisors said the deal would also be a boon for the financial services companies, which would allow them to do more business in China. The deal will also tackle currency manipulation by China. Turning back to earnings, the week will see several big companies report results in addition JPMorgan Chase, including six Dow-30 companies and fellow financial services giants and Dow-30 members Goldman Sachs (GS - Free Goldman Sachs Stock Report) and American Express (AXP - Free American Express Stock Report).
With less than an hour to go before the start of the new trading week stateside, the equity futures are presaging some modest selling when the U.S. stock market opens. The investment community appears a bit unsettled by a report from a leading financial daily over the weekend that China still wants to hammer out the fine print of the partial trade deal, with some sticking points remaining. However, very weak September trade figures from China, which saw U.S. imports from the Asian nation fall nearly 21%, may put added pressure on China’s President Xi Jinping to reach a deal. This situation, along with the looming Brexit deadline, remains fluid. So far overseas, the main indexes in China finished nicely higher overnight on the trade hopes, while the major European bourses are in the red as trading moves into the second half of the session on the Continent.
Overall, this promises to be a busy week for Wall Street, as in addition to the trade and earnings news, investors will get the latest data on retail sales, housing starts, and industrial production, as well as the Federal Reserve’s Beige Book report on Wednesday afternoon. Stay tuned.