After The Close - It was another volatile, but lower, day on Wall Street. However, concerns about when the Federal Reserve will wind down its bond-buying program—which has been the biggest reason for the recent market volatility—had little to do with today’s intraday swings in the direction of trading. The late-day pullback was mostly driven by overseas news, which included comments by Germany’s Chancellor Angela Merkel that Greece may not receive the full bailout amount as planned and reports of protests in Egypt (more below). These two news items, particularly the latter, seemed to spook investors this afternoon.
Indeed, after starting the today’s session nicely to the upside and holding the early gains through the morning hours on some positive U.S. economic data, the selling surfaced in the afternoon. The Dow Jones Industrials, the tech-heavy NASDAQ, and the broader S&P 500 Index all sold off modestly on the aforementioned international concerns. From a sector perspective, the biggest laggards were the industrial and basic materials groups. Within the basic materials space, the construction materials and the precious metals and minerals stocks were under the most selling pressure. Conversely, there was modest buying interest seen in the consumer discretionary group. Overall, the margin between advancing and declining issues, which was razor thin for a good portion of the trading day, moved in favor of the latter, particularly on the Big Board, by the closing bell.
Although there were no headline reports on the U.S. economy in between yesterday’s report on manufacturing activity and the still-to-come reports on non-manufacturing (Wednesday) and employment (Friday), there were some notable data released in the last 24 hours. This morning, we learned that factories in May saw a second consecutive month of gains in new orders. Then a few hours later, the major automakers reported a solid increase in June sales. The data provided further evidence of a recovery in U.S. auto demand. Strong sales were recorded by General Motors (GM), Ford (F), Toyota (TM), and Nissan (NSANY). In particular, pickup trucks continued their sales resurgence, with double-digit increases for the domestic brands. These reports did give a boost to the trading today, and more important may be a sign that some sense of normalcy might be returning to the market, with regard to its reaction to economic news. Recent encouraging economic data seem to be once again having a positive effect on trading. Over the last fortnight, good news on the economy had undermined investor confidence, as many believe it would push the Federal Reserve to cut back on its recent stimulus efforts sooner rather than later.
As noted, the news from overseas was unsettling and offset the aforementioned solid data on the U.S. economy. Specifically, investors were unnerved by reports that Egypt's military had drawn up plans to suspend the country's constitution, dissolve its legislature, and set up an interim government. Not surprisingly, the escalating tensions in that Middle East nation, which may disrupt U.S. oil supplies, pushed crude prices up sharply on the New York Mercantile Exchange. Meanwhile, the news from Europe was not encouraging either. Financially struggling Greece was given a three-day ultimatum by the International Monetary Fund to prove reforms are progressing as intended. This comes on the same day Portugal's finance minister, who orchestrated the country's EU/IMF bailout plan, resigned. Portugal, like Greece, has struggled in recent years with escalating sovereign-debt concerns. The overseas worries pushed the dollar higher against the euro in late trading and weighed on the performance of many of the commodities, save for oil, which rose on the building tensions in Egypt. Given the light trading volume expected over the next few days, the renewed concerns about Europe and the turmoil in the fractious Middle East may make for some more volatile trading ahead. Investors should note that the U.S. equity market closes at 1:00 P.M. (EDT) tomorrow. -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 is advancing again today, after a halting start, as the bulls look to extend the rally that started several days ago. As we pass the noon hour in New York, the Dow Jones Industrial Average is up 39 points (0.3%); the broader S&P 500 Index is adding on six points (0.4%); and the tech-heavy NASDAQ is up 11 points (0.3%). Market breadth suggests that today’s move may have some staying power. Specifically, advancing issues are ahead of decliners by almost 2 to 1 on the NYSE. Elsewhere, the market sectors suggest a bit more mixed performance. There is leadership in the consumer cyclical names. Also, the technology issues are doing well. However, the basic materials stocks are weak, one again.
Technically, the S&P 500 Index is at a crucial area, as it looks to close above its 50-day moving average located at 1,624. While the bulls are clearly making an effort to push the market higher, it may take a few attempts for this to be accomplished, and a catalyst of some kind may be needed. That could come from a variety of sources, such as positive news from China, or Europe. But most likely, the market will react strongly, one way or the other, to the monthly employment report due out this Friday. For now, sentiment seems to be favorable, as the VIX has fallen to 16.
The markets in the U.S. are showing this strength, even as they get little support from trading overseas. Notably, in Europe, the major bourses are all set to close in negative territory, with a fairly large decline on Germany’s DAX. Once again, the problems in Greece seem to be stirring up concerns, and that is likely behind the weakness on the Continent.
In the United States the economic news has been decent today, as factory orders rose 2.1% for the month of May. This showing, which was better than expected, also stands in contrast to the 1.3% advance logged in April. Later today, auto and truck sales are due out. Tomorrow will be a busy day for economic reports, too. The market seems to again be responding favorably to strong economic data, as it should. This may suggest that traders, now already accepting the idea that the Fed’s rounds of asset purchases and other operations will likely be tapered, are looking for better-than-expected economic news and higher corporate profits. In this regard, the upcoming second-quarter earnings season may be instrumental in determining the market’s direction. - 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 – There are a few stocks that will likely see active trading today. Shares of Constellation Brands (STZ) are down slightly ahead of the bell, after the producer and distributor of beer, wine, and spirits announced May-period results that fell a little shy of investors’ expectations. Automakers should be in the spotlight too, as Ford (F) and General Motors (GM) are scheduled to release data on domestic vehicle sales for the month of June. Elsewhere, the stock of videogame developer Zynga (ZNGA) is indicating a sharply higher opening this morning, after the company announced that it found a new CEO to replace founder Mark Pincus.
Finally, shares of Linn Energy LLC (LINE) are down notably in pre-market trading, after the diversified natural gas company said that the Securities and Exchange Commission is looking into its accounting and hedging practices, in addition to LinnCo LLC’s pending acquisition of Berry Petroleum (BRY). According to terms of the proposed deal, LinnCo, which has no assets other than its ownership stake in Linn Energy, would acquire Berry and then transfer ownership to Linn Energy. BRY stock is also down in the premarket on the news. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The bulls really kicked into gear early on yesterday to start the second half of 2013, with the Dow Jones Industrial Average racing to a nearly 175-point gain in the first hour of trading. The market then proceeded to retain most of that initial strength into the early hours of the afternoon. However, maintaining that momentum into the close proved difficult, as the profit takers came in during the final hour of trading, after the equity market had rallied strongly for four of the past five sessions, and the best of the early gains were eaten away.
Still, the market did manage to end the session notably to the upside, although with some of the froth taken off. In all, the Dow rose 65 points; the NASDAQ added 31 points; the Standard and Poor's 500 Index was nine points to the good; and the small-cap Russell 2000 held onto a 12-point increase. Also, rising stocks easily beat out declining issues to the tune of better than two-to-one on both the Big Board and the tech-heavy NASDAQ, making it a winning day for most mutual funds and their shareholders.
Helping the bulls regain their footing early in the day was a better reading than forecast on the manufacturing sector. Specifically, the Institute for Supply Management reported that its survey came in with a reading of 50.9 for June, which was a tad better than the neutral 50.0 survey result widely forecast. The reading also was ahead of May's 49.0 result, which, as it fell below the neutral 50 line, implied that this industrial category was undergoing a mild contraction. Now, that stumble has apparently ended. The survey result was most reassuring, meantime, as it suggested that manufacturing growth was sufficient to keep fears of an overall business setback at bay, while not strong enough to encourage the Federal Reserve to shorten the duration before it starts to ease off the monetary stimulus pedal.
Of course, yesterday's economic issuance was just a prelude to bigger things on the way. To wit, the pending data will also include today's reports on auto sales and factory orders and tomorrow's figures on non-manufacturing activity and the international trade balance. Then, following a day off to celebrate our nation's independence, the news will really step it up on Friday when the Labor Department will release its closely watched and highly anticipated report on job creation and the unemployment rate. That report, based on two separate surveys, can be a market mover--especially this Friday, when extremely low trading volume is expected, as many Wall Street participants make it a four-day holiday weekend. At this time, expectations are that the nation added 155,000 positions last month, some 20,000 less than in May, while the jobless rate is forecast to have eased back down to 7.5%, where it stood in April, but a tenth of a point below the May figure. Any notable deviation from these estimates could cause some stirring on this presumptive low-trading volume day.
As to other news, gold is up marginally this morning, for a third day in succession, after falling late last week to a three-year low of under $1,200 an ounce. Elsewhere, the markets around the world are little changed this morning, while our futures are suggesting a slightly better opening when trading commences in about a half hour from now. Finally, as we peer out to this upcoming session, we note that the S&P 500 Index is just a bit below its 50-day moving average, suggesting there could be some static as we approach that line, while the Dow is in something of a struggle to get back up to the 15,000 mark, which has some psychological significance. Then, there is the VIX volatility index, which has recovered some after bottoming out at 11.05. But the reading of 16.37 is still low enough to suggest the potential for some further selling down the road. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.