After The Close - The final day of the trading week brought out the bears, who, for the most part, had been in hibernation this month. The major U.S. equity indexes, which got a nice boost on Wednesday from the Federal Reserve’s decision to continue its accommodative policy, at least for the near term, pulled back on worries that the next round of budget talks on Capitol Hill will be as contentious as the prior few bargaining dramas and on comments from a Federal Reserve official that the lead bank’s tapering of bond purchases may begin next month. The latter issue was been a hot-button topic for investors since late May when Federal Reserve Chairman Ben Bernanke indicated that central bank would like to conclude its asset purchases by mid-2014.
By the closing bell, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index had given back a large portion of the week’s gains, with respective declines of 185, 15, and 12 points. Overall, declining issues outpaced advancers on both the New York Stock Exchange and the NASDAQ, to the tune of nearly three-to-one on the Big Board. Nevertheless, it was still another productive week on Wall Street, with the Dow 30 and the S&P at one point recording all-time highs. Meantime, gold, also gave back a portion of yesterday’s outsized Fed-driven gains. Gold jumped on the news that the Fed would continue its ultra-loose monetary policies, but backtracked today on commentary from a Fed official (see below).
Today’s losses were broadbased, with each of the 10 major sectors in the red by the final bell. The more-defensive healthcare group was the last area to succumb to profit taking. The biggest laggards were the economically sensitive sectors (i.e., the basic materials, energy, and industrial stocks) and the utilities. Within the basic materials space, the precious metals and construction materials stocks were off sharply. The steel stocks fell after industry participant AK Steel (AKS) lowered its third-quarter earnings guidance. Nucor (NUE), though, bucked the lower steel trend.
As noted, there are growing concerns among investors that upcoming budget talks on Capitol Hill will once again be contentious and could produce few solutions, which could pose a threat to the ongoing U.S. economic recovery. The first salvo was thrown by the Republican-controlled House of Representatives, which passed a temporary funding measure to keep the government running, but included a measure in the bill to defund the new health care law. Yesterday, House Speaker Boehner said that the Republicans would agree to raise the debt limit if Democrats agreed to delay the implementation of the Affordable Care Act another year. The Democratic-led Senate has noted that it plans to strip the health care provision from the bill next week and challenge the House to pass it as a straightforward funding bill that President Barack Obama would sign. Our sense is that this bickering will set the stage for combative budget negotiations that threaten to shut down the government on October 1st, the start of the new budget year.
Also today, investors were unnerved by comments from a Federal Reserve official. Specifically, St. Louis Federal Reserve Bank President James Bullard said that tapering of the central bank's popular $85-billion monthly bond purchase program may begin in October. Wednesday’s decision by the Federal Reserve to stay the course with regards to its accommodative monetary policies raised hopes, at least in the eyes of some pundits, that things could remain status quo at least through the end of 2013. Historically, a tightening of monetary policies is not viewed favorably by market participants.
Looking ahead to next week, the economy will remain front and center for investors, especially with the start of third-quarter earnings season a few more weeks away. Of note, we will get reports on consumer confidence and home prices (Tuesday), durable goods orders and new home sales (Wednesday), GDP (final revision to the second quarter data) on Thursday, and personal income and spending (Friday). These reports, along with the aforementioned dealings on Capitol Hill, are likely to influence trading next week. William G. Ferguson
At the time this article was written, the author did not have a position in any of the companies mentioned.
12:20 PM EDT - Stocks are trending a bit lower today, and still appear to be consolidating the big gains they achieved earlier this week. Right about the noon hour on the East Coast, the Dow Jones Industrial Average is off 65 points, but the NASDAQ is off just a handful of points. Market breadth is clearly negative, though, especially on the Big Board, where declining issues are outpacing gainers by a wide margin, although on the NASDAQ, losers are only slightly ahead of winners.
Apparently, the Federal Reserve’s decision to maintain the pace of its bond-buying program is giving Wall Street second thoughts about the strength of the economy and what the slight downward revisions in the central bank’s near-term GDP forecasts might mean for corporate earnings. This is on the threshold of earnings season, which begins in about two weeks.
Investors also have reason to be cautious with an ill wind blowing out of Washington, where lawmakers in the coming weeks may again engage in the type of brinkmanship over spending issues that rattled markets a couple of years ago.
Individual companies in the news include Apple (AAPL), which rolled out its iPhone 5s in stores this morning. Long lines, while not around the block, were apparent, suggesting good demand for the new and improved version of its smart phone. The 5s model comes with fingerprint identification and a better camera. Apple shares are moderately higher on the day.
The day’s big winners are IPOs. The stock of Rocket Fuel (FUEL), a digital advertising company, has doubled from the targeted $27-$29 a share range trading was set to start at. Similarly, network securities system company FireEye (FEYE) saw its shares double on their first day of trading.
On the down side, shares of Darden (DRI) are moderately lower, as the company reported weak earnings. Same-store sales fell 4% at its Olive Garden restaurants and 5% at Red Lobster.
More broadly, utilities are the weakest performing sector. There may be a bit of profit-taking place taking place in the group, which benefited notably from Wednesday’s decision not to slow its bond-buying efforts. However, there is already talk that the ''tapering’’ not implemented just yet might take place as early as the Fed’s October meeting. If that line of thinking gains credence, long-term interest rates may start edging higher again, which could hurt rate-sensitive utilities shares. -Robert Mitkowski
At the time this article was written, the author did not have a position in any of the companies mentioned.
Stocks to Watch from The Survey – Investors are going over a few earnings reports this morning. Notably, shares of Darden Restaurants (DRI) are down ahead of the bell, after the Olive Garden and Red Lobster parent reported disappointing August-period results. Likewise, the stock of AK Steel (AKS) is indicating a sharply lower opening this morning, after the steel maker predicted a wider-than-anticipated third-quarter loss. On the bright side, software developer TIBCO (TIBX) has reported stronger-than-expected August-quarter results, causing its stock to move nicely higher in pre-market trading.
Elsewhere, shares of Goodyear Tire (GT) are getting a lift this morning, as the company has announced a plan to reinstate a quarterly cash dividend after an 11-year hiatus. – 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 stock market meandered about yesterday in mostly negative territory, but without materially retracing either the nifty gains of Wednesday nor the notable increases logged so far this month. It was essentially a day of rest for the emboldened bulls, who have had things decidedly their own way so far in September.
Specifically, one day after the Federal Reserve provided some bitter food for thought for the forlorn bears--by voting to maintain its aggressive monthly bond purchases as a way of injecting more stimulus into the economic expansion--the leading averages mostly tracked lower for the majority of the session, finally closing the day with minor aggregate losses. Still, while the magnitude of the declines was small, the setback was rather broad, with most equity sectors reporting small losses.
This clearly was a calmer and more stable session than the one that preceded it. Of note, on Wednesday, the Fed statement had changed a moderate loss in the equity market at that time, into a bullish joyride that helped to lift the Dow Jones Industrial Average to a closing gain of 147 points, for a roughly 250-point swing from trough to peak. There was no repeat of the fireworks yesterday, as the blue chip index remained within a narrow range throughout.
All told, after holding in that tight band for the day, the Dow closed off by 40 points; the Standard and Poor's 500 Index shed three points; but the NASDAQ managed to eke out a six-point gain. The small- and mid-cap indexes, meantime, gave some ground, albeit grudgingly, while losing stocks held sway over winning issues on both the Big Board and the NASDAQ, but not by an overwhelming margin. The gains on Wednesday had been much more notable. Meanwhile, gold prices jumped, putting in the best one-day showing in some five years, while bond yields, which had tumbled the day before, recouped a measure of support yesterday. Also, the VIX volatility index edged still lower, dropping to 13.16, suggesting that speculative fever continues to run high. That is not a good sign for the bears, at least in the short run. It also would suggest that yesterday's meager profit taking is not the start of something big.
As to the markets, they remain in a nice comfort zone, as witnessed by the roughly 5% gain in the Standard and Poor's 500 Index so far this month and the 18% increase logged for year to date. Similar strength has been shown by the Dow and the NASDAQ, with the gains of September so far overcoming the modest losses sustained in August, when fears of a looming Fed cutback in monetary stimulus had caused some traders to turn their back on equities. Wednesday's surprise non-move by the nation's central bank clearly shifted sentiment. Although it is true that the Fed will possibly begin tapering its bond buying later this year, such actions may now be less decisive and spread out over a longer period of time--if, indeed, tapering begins at all this year.
As to other influences on trading, the budget and debt-ceiling crisis looms up ahead, and comments to date imply that this will be a contentious situation. Also, now that the Fed's FOMC meeting has concluded, the next matter of note will be to name a successor to Fed Chairman Ben S. Bernanke whose term ends in January. The odds-on choice to take the helm, according to pundits, is the Fed Vice Chairwoman Janet Yellen. She is widely regarded as a dove on monetary matters, and her nomination could well spark some fresh debate in Congress. Then, there is the economy, which the past two days has seen some mildly supportive news on housing, with the latest report issued yesterday morning, affirming that higher mortgage rates notwithstanding, sales of existing homes had ticked up in August. Some flattening in this market, though, now seems likely in the short run.
Finally, after the big run on Wednesday and a strong follow-up rally across the sea in both Asia and Europe yesterday, in response to the gains in our country, the global markets showed little movement overnight and so far this morning. On our shores, meantime, the equity futures are mixed, with the S&P 500 futures now a bit lower, while the NASDAQ futures are heading a little higher. A flat-to-up market would seem likely when trading resumes in about an hour from now. As to news, no issuances of note are expected today following a busy week to date. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.