After The Close - The “buy on the dip” scenario was very much in play during the week’s final day of trading. Indeed, the major U.S. equity indexes that performed the poorest yesterday, including the tech-heavy NASDAQ, the small-cap Russell 2000, and the S&P Mid-Cap 400 Index, rallied forcefully today. But that is not to say it wasn’t a productive day for the other large-cap exchanges. The Dow Jones Industrial Average and the broader S&P 500 Index also finished nicely higher in the latest session where advancers led decliners by a wide margin on both the Big Board and the NASDAQ. Pushing equities higher were some encouraging reports on the economy—including a big positive surprise from the Labor Department (see below)—and another round of fairly decent earnings news, including a positive showing from entertainment giant and Dow-30 company Walt Disney (DIS - Free Disney Stock Report).
From a sector perspective, not surprisingly, the groups most closely tied to the economy were clearly in favor. The financial sector, which had underperformed for most of the week, rallied. Other economically sensitive stocks that were in high demand included those in the basic materials, energy, and industrial groups. There also was some notable sector rotation on display, with investors moving away from the high-yielding stocks, particularly the utilities and telecommunications issues. The sharp jump in the yields on fixed-income securities—as sentiment that a strong jobs report may make the Federal Reserve again consider tapering its bond-buying activity in the months ahead—made higher-yielding equities less desirable alternative for income-seeking investors. All told, the yield on the benchmark 10-year Treasury note jumped in the latest session to a yield of 2.75%. (Investors should note that the bond market will be closed on Monday in observance of the Veterans Day holiday.)
As noted, it was a very good day for the economy—and week if you include earlier positive reports on third-quarter GDP, non-manufacturing activity, and the leading indicators. The big news this morning was a better-than-expected reading on job creation from the Labor Department. Specifically, nonfarm payrolls rose by 204,000 positions in October, well above the consensus expectation of 120,000. We also learned from the Commerce Department that personal income rose by 0.5% in September and personal spending ticked up by 0.2% in the same month. These two reports are further signs that the U.S. economy is pushing forward and augur well for the retailers as the holiday shopping season is fast approaching. Speaking of the retailers they will headline the earnings news next week, along with the latest results from Dow-30 companies Cisco Systems (CSCO - Free Cisco Stock Report) and Wal-Mart (WMT - Free Wal-Mart Stock Report). Overall, the earnings season was been a decent one, with the majority of the S&P 500 companies beating lowered expectations.
Looking ahead to next week, the investment community’s attention will be on the retailers, with the likes of Macy’s (M), Kohl’s (KSS), Nordstrom (JWN), and The Children’s Place (PLCE) scheduled to report their latest quarterly results. Meanwhile, a week that was originally supposed to be heavy on economic data is looking rather light, as reports on producer and consumer prices and retail sales will be pushed back a week, the result of the government shutdown last month. The lack of noteworthy reports from the earnings front and on the business beat—save for the latest data on industrial production and capacity utilization—may have investors thinking about what the Federal Reserve’s next move with regard to monetary policy will be. If the guessing that the central bank will soon begin to taper its bond purchases—which is quite possible given the latest economic news, including a jump in job creation—some correction can’t be ruled out in a market that is clearly overbought. (The S&P 500 Volatility Index (or VIX), also known as the “fear gauge” fell around more than 5% today and ended the week slightly below 13.) Historically, signs or actions that the Federal Reserve will tighten its monetary policies have not typically been well received by equity market participants. - 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 is trading higher today after yesterday’s sharp drop. The fact that the market is firming up, rather than extending its losses, is a good indication for the bulls. However, we will have to see further follow through in the afternoon for confirmation. As we pass the noon hour in New York, the Dow Jones Industrial Average is ahead 85 points; the broader S&P 500 Index is up 15 points; and the technology-heavy NASDAQ, which is showing leadership, is tacking on 53 points. In addition, strength on the Russell 2000, which is composed of small-cap names, also suggests that speculative sentiment is still intact. Market breadth is a bit mixed, as advancers are about even with decliners on the NYSE. However, these figures are more favorable on the NASDAQ. Most market sectors are making progress, with solid gains in the financial issues. The healthcare stocks are also doing well, thanks to advances in the biotechnology group. In contrast, the high-yielding utilities are lagging, as traders are likely feeling less risk averse today.
Technically, the S&P 500 Index sold off yesterday, and that move was accompanied by heavy trading volume. The move lower also put the broad index at the bottom of a trading range that had formed over the past week. It is still a bit early to tell if the market is headed for a more substantial correction, or if equities will continue to firm up. Sentiment is a bit more upbeat today, as the VIX is a bit lower.
Meantime, traders received some important economic news today. According to the government’s employment report, 204,000 jobs were added in October, which was far better than had been expected and also above the September figure. The unemployment rate came in at 7.3%, which was more or less as expected. However, the University of Michigan’s consumer sentiment survey for the month of November came in at 72.0, which was a bit lower than analysts had anticipated.
There also were a few important earnings reports put out today. Among the big names, Walt Disney (DIS - Free Walt Disney Stock Report) stock is trading higher, as the company reported decent figures. In addition, high-priced Priceline.com (PCLN) shares are up a bit, after issuing a good 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 Survey – The earnings calendar is a bit lighter than it has been in recent days, but there are still a number of high-profile reports that investors should be aware of. Leading the charge is media and entertainment giant Disney (DIS – Free Disney Stock Report), which reported solid September-period results but said it was pushing back the release date of the next installment of the Star Wars franchise from the summer of 2015 to December of that year. That news is likely behind the stock’s pre-market weakness. Other stocks moving lower ahead of the bell on earnings news include energy drink maker Monster Beverage (MNST) and energy company Apache (APA). Conversely, investors appeared pleased with quarterly financials from online travel broker Priceline.com (PCLN) and semiconductor company NVIDIA Corp. (NVDA), as well as preliminary October-period results from apparel and accessories retailer The Gap (GPS). All three stocks are indicating higher openings this morning as a result.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The historic bull market, which has been supremely resilient for so long, at last succumbed to a modicum of profit taking yesterday, with the leading equity averages proving unable to sustain an early advance, which had lifted the 30-stock Dow Jones Industrial Average to another all-time high of just under 15,800 and the Standard and Poor's 500 Index to within a point of an all-time peak. By the end of the trading day, the stock market was broadly and sharply lower, as stocks moved progressively down following that failed selective early attempt to sustain new high ground.
Perhaps it was the report, issued before trading commenced, of a surprisingly strong third-quarter increase in the nation's gross domestic product that brought in the sellers. After all, a notable pickup in economic growth would be a timely excuse for the Federal Reserve to finally start to take its foot off of the monetary accelerator. However, on closer inspection, the quarter's 2.8% growth included a 0.83% contribution from inventory accumulation. Such stockpiles are often whittled down in subsequent quarters, so this might just be a case of accumulating now and working such accumulations off subsequently. Still, there is no denying that the GDP report was much better than expected. Another explanation for the sudden selling in the market might be that after a succession of better-than-expected surveys over the past fortnight, including strong data on car sales, the leading indicators, manufacturing, and non-manufacturing, there might have been some concerns ahead of this morning's issuance from the Labor Department on October payrolls and the unemployment rate (see below).
Of course, it may just have been a case of some bulls seeking to cash out a bit early. The figuring, perhaps, to use the approach that was employed more than a half century ago by legendary baseball savant Branch Rickey is that it often is better to sell a player one year too early than one year too late; it might be the same with stocks. To wit, a little preventive lightening up now could help stave off more frantic unloading of stocks later on when the market finally does seriously reverse, as it inevitably will at some point.
Whatever the cause, the market did pull back notably yesterday, but not as much in the Dow Jones Industrial Average, where the day's loss of 153 points was less than 1%, with the setback mitigated by some buying in a few blue-chip components domiciled on that composite. Still, that index did close at just under 15,600, making for a peak-to-trough swing of better than 200 points. The broader Standard and Poor's 500 Index, meantime, shed 23 points, or 1.3%, while the tech-laden NASDAQ, the big winner for much of this year, surrendered an eye-catching 75 points, or 1.9%. The losses in the S&P Mid-Cap 400 (off 1.8%) and the small-cap Russell 2000 (also down 1.8%) were in line with those on the NASDAQ. There was little to cheer for the bulls, with all of the major equity groups in the red, some notably.
All of this took hold on a day in which the much anticipated and fully hyped initial public offering of Twitter (TWTR) took place amid a buying frenzy, which saw that issue debut at $26 a share and quickly climb to just over the $50 mark, before settling in to a close of just under $45. It was thus clearly a very successful coming out party. However, there was very little else to cheer on the investing crowd on a day that saw some of the most relentless selling in weeks, with particular weakness in the recently recovering basic materials sector.
As to the just-issued employment survey, the Labor Department reported that the nation added 204,000 jobs in October. That was dramatically above consensus expectations of 120,000 new payrolls, while the unemployment rate ticked up from 7.2% in September to 7.3% last month. Our sense is that this report will have a moderate impact on trading today, but perhaps less than would have been the case normally, as it came out a week late and is thus a week closer to the next jobs issuance. Also, the government shutdown likely had a material effect on the outcome. Even so, this was a big number and the Federal Reserve may well be disposed to taper its bond buying earlier than would otherwise be the case. Overall, the futures are now suggesting a modest downward bias at the open, after an mild uptick before the report's release. As such, a further move lower by stocks this morning would seem likely, although we could see a reversal at some point, if the move lower goes too quickly. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.