After the Close - The second half of 2013 is off to a fairly solid start for those long equities. In all, the major U.S. equity indexes began the session sharply higher and then proceeded to carry a good portion of those early gains over most of the session before some late-day selling picked up and erased a portion of the early gains by the closing bell. Still, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index added 65, 31, and nine points, respectively. Overall, advancing issues outpaced decliners by a more than two-to-one margin on both the New York Stock Exchange and the NASDAQ.
Helping equities were some decent economic data both here and abroad. On these shores, the focus was on the Institute for Supply Management’s reading on manufacturing activity, which came in above expectations at 50.9 and was an improvement over the slight contraction (49.0) reported in May. Elsewhere, data showed that Japan’s economy, as Economic Minister Akira Amari pointed out, is “clearly recovering.” A few of Japan’s manufacturing and non-manufacturing surveys showed improvement in June. Meantime, China’s economic data were less flattering with its manufacturing index falling to 50.1 from 50.8, but it was still slightly above the expectation of 50.0. On the Continent, the euro zone’s Manufacturing PMI ticked up to 48.8 from 48.7, with a few of its member nations posting slight improvements in their own manufacturing surveys. The major European bourses ended the session in positive territory, while Japan’s Nikkei 225 and China’s Hang Seng finished with respective gains of 1.3% and 1.8%.
Our sense is that the equity market is getting a nice boost from some rotation of funds out of bonds and into stocks. With yields moving higher in recent weeks, holding bonds has become less attractive. In fact, as reflected in today’s outsized gains for the S&P Mid-Cap 400 Index (up 1.0%) and the small-cap Russell 2000 (+1.3%), investors are once again showing a greater appetite for risk. Comments last week from some Federal Reserve officials that the current stimulus measures would not be slowed imminently were greeted positively by market participants.
From a sector perspective, most of the 10 major groups fared well, led by the consumer staples stocks. There was also increased interest in those sectors closely tied to the global economy, owing to the aforementioned economic data. The industrial, basic materials, and energy issues were in demand. Conversely, the high-yielding utilities and telecommunications equities were laggards today.
Looking ahead, the economy will remain the focus of the investment community in this abbreviated trading week, with data due on non-manufacturing and the trade gap (Wednesday) and employment and unemployment (Friday). Given the expected light trading volume surrounding Thursday’s July 4th holiday, if these reports were to bring surprises, it could lead to increased volatility on Wall Street. The game changer, with regards to its effect on trading, could be the nonfarm payroll figure and the unemployment rate, as the Federal Reserve is on record as saying that the health of the labor market will dictate how long the current bond-buying program remains in place. - William G. Ferguson
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
12:20 PM EDT - The stock market got off to a solid start this morning and has been able to build on these gains, which is encouraging. As we pass the noon hour in New York, the Dow Jones Industrial Average is up 158 points (1.1%); the broader S&P 500 Index is gaining 19 points (1.2%); and the tech-heavy NASDAQ is up 49 points (1.5%). Market breadth shows a strong tone, as advancing issues are outnumbering decliners by about 4 to 1 on the NYSE. The showing is equally favorable on the NASDAQ.
Most of the market sectors are firmly in positive territory. There are advances in the healthcare issues, thanks to strength in the biotechnology area. Notably, this has been a leading group for a while, and suggests that some speculative sentiment is still alive. Further, many larger drug companies, faced with lackluster pipelines and threats from generic offerings, have been looking to expand through acquisition. The industrials and basic materials are also putting in a good showing today. Both oil and gold prices are trending higher today, which is lifting related equities. Meanwhile, the utilities are off slightly, as these stocks, once thought of as defensive high-yielding stalwarts, have been out of favor lately. The telecom issues are also underperforming today.
Technically, the S&P 500 Index weakened a bit on Friday, but now seems to be making a renewed effort to move higher. Notably, the broad index is just at its 50-day moving average, located at 1,623. Closing above this area would be encouraging, suggesting the bulls have the upper hand once again. The VIX is down about 4%, to 16 today, also indicating a bullish bias to the session. Note the next few days may be volatile, as we have a holiday in the middle of the week, followed by the release of the non-farm payroll figures for June on Friday morning.
The economic news released today also likely helped fuel the rally. The ISM Manufacturing Index increased to 50.9 in June, up from 49 in May. The recent reading also came in ahead of expectations. While many traders may fear interest rates will move higher, this could be offset by dramatic improvements in the economy and better earnings. We also received a healthy construction spending figure for May. Tomorrow, we get a look at factory orders for May, as well as auto and truck sales for June. - Adam Rosner
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
10:45 AM EDT - The stock market is advancing sharply this morning. At roughly 10:30 in New York, the Dow Jones Industrial Average is up 167 points (1.1%); the broader S&P 500 Index is ahead by 19 points (1.2%); and the NASDAQ, which is leading the major averages, is up 48 points (1.4%). Market breadth is very favorable, suggesting the move has broad-based support and may well continue into the afternoon. Some decent economic data released in the U.S. this morning is likely the reason behind the rally. Specifically, the ISM Manufacturing Index for June came in better than expected. Construction activity picked up in May, as well. Elsewhere, stocks here in the U.S. may also be getting some support from a strong session in Europe. -Adam Rosner
At the time of this article’s writing the author did not have positions in any of the companies mentioned
Stocks to Watch from The Survey – Corporate news is light this morning, but there are a few companies that will likely be in the spotlight today. Notably, Onyx Pharmac. (ONXX), the drug maker, has reportedly rejected a $10 billion takeover bid from biotechnology company Amgen (AMGN). ONXX shares are soaring in the premarket on the news, while AMGN stock is up slightly. Meanwhile, shares of cellular phonemaker Nokia Corp. ADR (NOK) are indicating a higher opening, on reports that it has agreed to purchase the remaining stake in its joint venture with diversified conglomerate Siemens AG (ADS) (SI) for $2.2 billion. SI shares are trading slightly higher in early morning trading, as well. – Kathryn M. Drew
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 ended a generally stronger second quarter and opening half on a mostly lower note, as a recently much more volatile stock market closed the final trading session of the just-ended six months on the down side, with the Dow Jones Industrial Average sinking 115 points, but with the other major averages, notably the Standard and Poor's 500 Index, the NASDAQ, the S&P Mid-Cap 400 Composite, and the small-cap Russell 2000, showing more grudging movement.
Essentially, it was a day for window dressing, as portfolio managers sought to put the final touches on a frenetic quarter, which still saw the aforementioned Dow rise a modest 2.3%. This gain came in spite of a lower June, which saw the blue chip indicator post a monthly loss for the first time this year. Still, this was the market's best showing for the opening six months of any year since 1999, when a far different world saw the stock market close out the penultimate year of the old century with impressive gains for the full 12 months.
The Friday setback, which saw all of the key indexes, save for the NASDAQ, end the day with mild to more substantial losses, came on a week that also witnessed stocks rallying following a Monday setback, to post three solid gains in succession, with the Dow rising by triple-digit points each of those days.
Helping the market for much of the week were falling bond yields. Rising returns on fixed-income vehicles, while helpful for those contemplating such holdings, do less for the actual holders, as their principal falls, since bond prices move in the opposite direction from yields. Also, the higher yields suggest that the Federal Reserve may be signaling, as we think it is, that a less accommodative monetary course may soon start to be charted. That is because there is some inclination, we believe, among this nation's central bankers, to let the U.S. economy more fully stand on its own after years of extreme monetary support, as the lead bank sought to lessen the chances that this nation would succumb to the same downward forces that it saw during the 1930s.
During this latest week, however, after the marked selling of the previous seven-day stretch, there was some consensus evolving that the central bankers of China, Europe, and the United States might not be moving quite as aggressively and as imminently as had been earlier feared to lessen the amount of stimulus being pumped into the various economies. We'll see. For now, investors seem to be a bit wary, as the second half gets under way.
That said, the markets are boasting a stronger tone as we get ready to start the new trading week, with the S&P futures now up by more than six points and the NASDAQ futures ahead by some 20 points, with less than an hour to go before the start of the trading day, week, and half.
And as to that week, it will be shortened on Thursday by our country's observance of Independence Day. As to events this week, beyond the celebration of the nation's 237th birthday, we also will be getting a look at data on manufacturing activity later this morning, non-manufacturing activity on Wednesday, and the monthly employment survey on Friday. So, it should be an eventful week, as Wall Street seeks to extend the gains of the first half in a somewhat changed environment, where the Fed may play a larger role than it did during the opening six months. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.