Loading...
 

After The Close - The buyers returned to the fray today after two down days for the U.S. equity market. Of note, there was some bargain hunting, which is not all that surprising following yesterday’s sharp selloff, and by the closing bell, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index had retraced a modest portion of the two-day setback. Overall, advancing issues notably outpaced decliners on both the Big Board and the NASDAQ, but as reflected by the less compelling buying in the small-cap Russell 2000 and the S&P Mid-Cap 400 Index for most of the session, there are some signs emerging that investors are becoming a bit more gun shy about adding risk to their portfolios. Still…

From a sector perspective, most of the 10 major groups were able to finish in positive territory. Leadership was once again shown by the energy stocks, which have moved higher in recent days on elevated energy prices. The ongoing turmoil in Syria and the likelihood that recent events in the country’s civil war will draw a military response from the world powers, including the United States, has raised concerns that oil shipments from the fractious Middle East will be disrupted. This has pushed oil prices markedly higher, hitting their highest level since May, 2011 in intra-day trading. Conversely, the stocks of the transportation companies, whose businesses are heavily reliant on oil consumption, have slumped in recent sessions. Basic materials issues finished lower as well, weighed down by a subpar showing from the precious metals and minerals stocks. Meanwhile, the homebuilding stocks were weak on more concerns that the recent uptick in lending rates will slow the ongoing recovery of the housing market. Recent data on housing (see below) seem to be suggesting such.

Speaking of interest rates, the mounting fears that rates will continue to rise after the Federal Reserve likely cuts back on its bond buying, perhaps as early as next month, is weighing on the higher-yielding equities. (The yield on the benchmark 10-year Treasury note rose six basis points today.) Such a scenario would make higher-yielding fixed-income securities an attractive option for income-oriented investors. Today, we witnessed some more sector rotation out of the higher-yielding consumer staples and telecom groups. The utilities finished modestly higher, though.  

As noted, the economic news, particularly which related to the housing market, has not been overly encouraging in recent days. In addition to last Friday’s weak data on new home sales for the month of July, we learned this morning that pending home sales also fell last month. Specifically, the National Association of Realtors said that its pending sales index eased 1.3% from June, the second consecutive monthly decline. These disappointing reports, along with the continued fears that rates will rise as the Federal Reserve cuts back on its accommodative monetary policies, is weighing on the homebuilding stocks, including those of industry leaders D.R. Horton (DHI), PulteGroup (PHM), Lennar (LEN), and Toll Brothers (TOL).    

Looking ahead to the remainder of the week, the investment community’s attention, with earnings season now in the rearview mirror, will be on the unsettling events from the Middle East and the few reports on the economy. Specifically, will get revised data on second-quarter GDP tomorrow and the latest report on personal income and spending on Friday. Our sense is that with the escalating conflicts in Syria on the minds of investors and with trading volume likely to be light, particularly on Friday ahead of the long Labor Day weekend, it could be a volatile two days of trading to conclude the week.  -William G. Ferguson

 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

12:30 PM EST - The U.S. stock market opened higher this morning, and is still building on that advance. At just about noon in New York, the Dow Jones Industrial Average is up 58 points; the broader S&P 500 Index is ahead eight points; and the NASDAQ, which is once again leading the charge, is tacking on20 points. Market breadth shows some underlying support for equities, as advancers are outnumbering decliners by roughly 2 to 1 on the NYSE. Most of the market sectors are advancing, with particular leadership in the energy issues. Crude oil is up slightly again today, to $105 a barrel, as concerns about tensions in Syria persist. Notably, the Middle East produces about one third of the world’s oil, so these fears are valid, to some degree. The basic materials issues are also doing well. In contrast, the consumer noncyclical issues are weak today.

Technically, the S&P 500 Index sold off sharply yesterday. That move was accompanied by rather heavy volumes, which suggests some conviction on the part of traders. Even still, there has been little panic selling in general lately, and any pullbacks have been orderly. The VIX is slightly lower to about 16.33 today, meanwhile.

Investors did not receive too much economic news this morning. However, pending home sales did slip 1.3% in July, following a slight decline in June. It should be noted that while economic reports are never totally smooth, the housing market data have been a bit spotty lately. For example, last week traders received weaker-than-expected new home sales figures for July, while existing home sales for that same month improved.  Tomorrow, the employment situation is in the spotlight, as we get a look at the weekly initial and continuing jobless claims. We also get a revised estimate for second-quarter GDP, which can be influential.

It has been a quiet day for corporate earnings reports. However, a few companies are making news. Zales (ZLC) stock is higher by about 20% today, after the diamond seller posted better-than-expected results. Wet Seal (WTSL), an apparel business, is also seeing its stock trade higher on a decent report.   - 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 SurveyThere is some earnings news out today. Investors appeared impressed with a number of July-period reports, including those from apparel retailer Express (EXPR), jeweler Zale Corp. (ZLC), women’s wear retailer Chico’s FAS (CHS), and TiVo Inc. (TIVO), which provides television set-top boxes that include digital video recorders. Shares of EXPR and ZLC are up sharply ahead of the bell, while TIVO and CHS indicating a moderately higher opening this morning. Conversely, shares of wine and spirits producer and distributer Brown-Forman (BF/B) and mining equipment manufacturer Joy Global (JOY) are both trading lower in the premarket, with JOY stock showing particular weakness. – 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 bears, who have been threatening, albeit in half-hearted fashion, in recent weeks to take equities notably lower, only to be met by some rather stubborn bulls along the way, finally wrested control of the market, and in a serious manner yesterday.

Interestingly, though, the source of Wall Street's angst thus far this month, the Federal Reserve, and speculation about what the lead bank will shortly opt to do with its wildly popular bond-buying initiatives, was not the cause of the notable selling yesterday. Rather, it was news from the international arena that caught the fancy of the bears--namely, the threat of military a strike by the West against Syria and its indicated use of chemical weapons.

Actually, the selling commenced late Monday, when with about an hour to go and the Dow Jones Industrial Average up about 40 points, Secretary of State John Kerry took Syria to task for its military conduct. Worries that such warnings could escalate into more than a war of words, oil prices firmed anew and stocks tumbled, with the Dow erasing all of that modest gain and falling by 64 points into the red for good measure. 

Armed with that 104-point downward swing by the Dow and by material setbacks in Asia and then in Europe yesterday morning, the sellers massed on our shores threatening to take stocks down at the open. And they did, so that in a few minutes after the opening bell, stocks had weakened significantly, with the Dow racing to an early loss of about 120 points, and with the NASDAQ, a stalwart performer in the past few weeks, doing proportionately worse. But traders then briefly revised their thinking, and the bulls quickly rushed in paring the Dow's loss from the aforementioned 120 points to barely a third of that level.

However, the recently chastened bulls could not sustain that momentum, and the sellers soon reappeared, pushing the blue chip index to a late-morning loss of about 100 points, where it stayed until mid-afternoon, when another wave of selling commenced, taking the Dow down to a mid-afternoon loss of about 160 points. The selling continued into the close, with the Dow at one point shedding more than 180 points before closing down by 170 points. Meanwhile, the NASDAQ continued to do proportionately worse, losing about 85 points at its nadir. Losing issues, moreover, swamped winners on both the Big Board and the NASDAQ. The Standard and Poor's 500 Index also faltered badly losing proportionately more than the Dow, but less than the NASDAQ, and in the process suffering its biggest setback since June 20th. Other casualties included the S&P Mid-Cap 400 and the small-cap Russell 2000.        

Of course, it isn't just the international situation that is vexing investors. There also is the Fed and worries about its likely move later this year to taper its bond buying. There additionally is the unknown concerning the successor to Ben S. Bernanke as Fed Chairman. Finally, there is the pending debt-ceiling drama, which could unfold by mid-October, and the consequent need to fashion a budget deal in contentious Washington. Given all this and some ongoing uncertainty on the economic front, it is not surprising that in an elevated market there is now some profit taking evolving. 

Of course, things can change from day to day, and yesterday's problems often have a way of easing off shortly thereafter. However, for now, the focus is clearly back on the fractious Middle East, on Washington, and the Fed. That is an especially worrisome array, especially in an environment in which stocks are definitely not cheap.

Meanwhile, as noted, hopes that the bulls would mount a late charge yesterday were dashed as the averages ended at their session lows, and the markets overseas are following in lockstep this morning. However, our futures seem to now be attempting to stabilize and perhaps halt their erosion at the open. We caution, though, that following such a selloff, it would not be surprising to see some intraday swings of note. For now, it promises to be a bumpy ride. Stay tuned. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.