After The Close - The first day of the new trading week went to the bears, through it should be noted that market participation—as measured by volume—remained light, which may well be an indication of a lack of conviction on the part of traders. It may also be a case of some investor fatigue after a phenomenal bull run in 2013 and some hesitation ahead of forthcoming significant news on both the earnings and economic fronts. Indeed, as we move closer to the start of fourth-quarter earnings season, investors remain focused on this Friday’s report on nonfarm payrolls for the month of December. The employment report can be a game changer and, thus, it seems as market participants are restraining from making any major moves ahead of the job creation data. 

Specifically, the major market averages started the session to the upside, but quickly reversed course, prompted by a weaker-than-expected report on the services sector (more below). For much of the session, the equity indexes were not too far removed from breakeven, but were in negative territory nonetheless. The selling was more pronounced in the tech-heavy NASDAQ Composite and among the small- and mid-cap issues. This, coupled with the drop in the yields on fixed income securities, may be an indication that investors are a bit more reluctant these days to add more risk to their portfolios, especially with the market overbought. Overall, declining issues led advancers on both the Big Board and the NASDAQ, with the spread a bit more pronounced on the latter exchange. 

From a sector perspective, it was mostly a sea of red ink among the 10 major categories. The biggest laggards were the consumer discretionary and industrial groups. The former was likely hurt by a slightly weaker-than-expected report on non-manufacturing activity. Specifically, the Institute for Supply Management reported that non-manufacturing activity came in at 53.0, which was a full three percentage points above the acknowledged dividing line between an expanding non-manufacturing base and one that is contracting. However, the latest survey showed the smallest rate of growth since June, when the index registered 52.2. Meantime, there also appeared to be some sector rotation in play once again today. This time, investors showed more interest for the utilities and telecommunications stocks. Our sense is the drop in the yield on fixed-income securities, which makes bonds less attractive from an income perspective, had some to do with the activity in those two equity sectors.

As noted, fourth-quarter earnings season is fast-approaching, unofficially kicking off after the close of trading this Thursday when former Dow-30 component and aluminum producer Alcoa (AA) releases its full-year results. It should be noted that given that a good deal of the companies are reporting yearend figures, the reports will be less concentrated and spread out over a large time period. The current sentiment is calling for another decent performance at the bottom lines, but revenues growth will likely be a bit more subdued. With the market clearly overextended—the S&P 500 Volatility Index (or VIX) ended the session below 14, a level that would clearly suggest such an environment—a disappointing earnings season, at the very least, could prompt some selective selling in the equity market. 

Looking ahead to the remainder of this week, as noted, all eyes will be on this Friday’s report on employment and unemployment from the Labor Department. In addition to providing additional insight on how the economy is doing, it is expected to be closely watched by the Federal Reserve, which is scheduled to meet on the 28th and 29th of this month to set monetary policies. The Federal Reserve’s accommodative policies in recent years have been credited with playing a big role in the equity market’s notable move higher.  The reaction to this report with all be another sign as to whether the market is now trading on the health of economy or on just Fed hopes. The latter seemed to be the case for much of the second half of 2013. -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 early this morning, but the advance has so far proven unsustainable. At past noon in New York, the major averages are all trading lower. The Dow Jones Industrial Average is off 35 points; the broader S&P 500 Index is down five points; and the technology-heavy NASDAQ is lower by about 19 points. Market breadth also confirms a slightly negative bias to today’s session, as declining issues are ahead of advancers.

Most market sectors are trading in negative territory. There are pronounced losses in the basic materials area, as the steel names are weak today. The industrial issues are also headed lower, with losses in the construction-related stocks. Some consumer and technology issues are also slipping. Meanwhile, the financial stocks are bucking the downtrend, thanks to strength in several banks. Further, the high-yielding utilities are holding up a bit better than other groups.

Technically, the stock market has weakened during the first few trading days of 2014. The S&P 500 Index is on track to log its third consecutive daily loss, barring a late-day reversal. Nonetheless, trading volumes remain light, suggesting a lack of participation by the large institutions. Many traders and money managers may be maintaining a cautious stance, especially given the market’s current level. It is evident that the economy is on the mend, and the earlier runup in equities likely reflects that. However, stock valuations have become extended, as price-to-earnings ratios are quite high; dividend yields are low; and appreciation potential is, in many cases, limited.

Elsewhere, traders received a few economic reports today. Specifically, factory orders increased 1.8% for the month of November, which was slightly better than had been anticipated.  Also, the Institute for Supply Management’s Non-manufacturing Index provided a reading of 53.0 in December, which was just a bit lower than November’s reading, and also slightly weaker than many had expected. Tomorrow brings the November trade balance report. But, of high importance will be the government’s employment figures for December, which is due out on Friday.

In the corporate arena, the earnings reports have been limited, as we are soon to start the fourth-quarter reporting season. However, shares of Apple (AAPL) traded lower, but then recovered, after a “Wall Street” downgrade. (EBAY) stock is off for a similar reason. - 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 SurveyThe stock market will likely be more active today than it has been recently, as investors look ahead to the first full week of trading following the holidays. Of note, shares of Sirius XM Holdings (SIRI) are up nicely in the premarket, after media and entertainment company Liberty Media offered to buy the roughly 48% of the satellite radio operator that it does not already own through a stock swap.  Elsewhere, the back and forth between menswear retailers Joseph A. Bank (JOSB) and The Men’s Wearhouse (MW) continues, as The Men’s Wearhouse has launched a hostile takeover bid of $57.50 a share for its rival. Both stocks are up moderately ahead of the bell, as a result. – 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 tried hard to end up in the plus column on Friday, battling throughout the session to avoid back-to-back losses to start the new year. And, in the end, traders were able to do a little more than mark time, with the Dow Jones Industrial Average managing a modest comeback rally in late-afternoon trading, gaining 29 points on the day, while the Standard and Poor's 500 Index failed to hold a slight late gain, falling back by less than a point, while the tech-heavy NASDAQ, weighed down by weakness in a few high-profile technology names, lost 11 points. Thus, while Wall Street didn't add to Thursday losses, neither did it materially reverse the initial setback, at least in the large-cap indexes. The broader market did better, however, with gaining stocks easily eclipsing decliners. 

This seesaw activity took place on a day of limited hard economic news, but no shortage of musings from Federal Reserve Board officials. Of note, here, were comments by Philadelphia Federal Reserve President Charles Plosser, who warned of some potential rapid interest-rate increases going forward. The Philadelphia Fed President, however, is known for his hawkish views. Still, his views will be increasingly important, as he will become a voting member of the Federal Open Market Committee this year. Last month, the central bank had voted to start tapering its highly popular bond-buying program. However, it also was clear in stressing that it was committed to maintaining its historically low interest-rate structure until the jobless rate comes down further. These latest remarks cast some doubt on Fed intentions in this critical area, although outgoing Fed Chairman Ben S. Bernanke was less foreboding in his comments late Friday.

Meanwhile, volume was low once again, in some measure due to the fact that there was limited hard economic news during the day, but more so because a number of traders were still on vacation, while others in the Northeast found it difficult to get to work on this bitingly cold day and first snowstorm of the new year.

Also, at work, we sense is some selective paring of positions following a historic bull run in 2013, which saw the Dow post 52 record closing highs, while the Standard and Poor's 500 Index reached a new milestone a not-too-shabby 44 times. The NASDAQ, in the meantime, gained more than 38% on the year, and is now within a thousand points of its best levels ever. That earlier record was set in 2000, as so many issues on that composite had been erroneously labeled one-decision stocks by giddy investors only to wind up being investment nightmares at some not-too-distant point in the future.         

Now, following last year's heroics, a new 12-month cycle is at hand and thus far it has been less than welcoming, although it is just two days. Does January set a trend? Some market historians claim it does, although more in-depth analysis casts doubt on the reliability of such investment musings. Moreover, we are a long ways from the end of the month, although the hesitant start to the year bears at least some watching.  

Finally, we are looking out to a new week this morning, the first full five-day stretch of 2014, and we find the markets putting in a generally constructive session overseas, while on our shores, the Standard and Poor's 500 Index futures are now up almost four points, while the NASDAQ futures, off earlier this morning, are now pressing some four points higher, as well. Oil, meantime, is up a few cents, while gold, a nifty gainer over the first two sessions of the new year, is off a bit. As to pending news, we will get the ISM's non-manufacturing index issued some 30 minutes into the trading day. But the big news story this week will be employment. First, a key private-sector survey on job creation will be issued on Wednesday; then, the Labor Department will release jobless claims data on Thursday. However, both reports are just warm-ups for Friday's data from the Labor Department on non-farm payrolls and the U.S. unemployment rate in December. Expectations are that 190,000 jobs were added last month, while the consensus thinking is that the jobless rate held steady at 7.0%. That report is often a market mover.   - Harvey S. Katz

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