After The Close - The final day of the trading week proved to be another uneven one, at least for those invested in some of the bigger name stocks. However, the NASDAQ and the broader S&P 500 Index, which were at times in and out of positive territory during today’s choppy session, were able to end the day in the plus column, and the Dow Jones Industrial Average was able to pare most of its earlier losses. The major averages were helped by a pickup in buying in the last hour. The late-day improvement was not all that surprising as the overall mood of trading on Wall Street had a positive undertone to it even when the major averages were struggling to regain their equilibrium. Throughout much of the day, advancing issues led decliners by a notable margin on the Big Board. The scales were also tilted in favor of the winners on the NASDAQ, but not to the same degree as the NYSE.
The Dow Jones Industrial Average, which spent most of the session in the red, was hurt by a few of its big name components. The primary culprits were the blue-chip stocks of Boeing (BA - Free Boeing Stock Report), Chevron (CVX - Free Chevron Stock Report), UnitedHealth Group (UNH - Free UnitedHealth Group Stock Report), and Visa (V).
As noted, the choppy performances of the major averages were not indicative of the overall performance of the U.S. equity market. Investors need not look any further than the 10 major sectors, which all finished in positive territory, despite initial concerns about the weak U.S. employment data. One group that the labor report helped were the high-yielding equities. The weak jobs figures pushed the rates on fixed-income securities lower, making the higher-yielding stocks, particularly the utilities issues, more attractive options to those accounts that stress income accumulation. The weak report also prompted some rotation into the more-defensive sectors, including the healthcare and telecommunications groups. There was also some leadership today from the basic materials and homebuilding stocks.
The news on the labor market was not very encouraging. Before trading commenced on these shores, the Labor Department reported that nonfarm payrolls increased by only 74,000 during the month of December, far short of the consensus expectation of 190,000 new jobs. However, as the day progressed, and the labor figures were given more scrutiny, sentiment grew in the investment community that the setback may be a one-time blip, caused by some poor weather last month. There was also some prevailing thought that the weak employment numbers may push the Fed to keep its highly accommodative monetary policies—which have been a huge boost the equity market during a four-plus bull run—in place longer. In the same vein, the reason why the dour labor report did not have much of a negative impact on stocks today was that investors simply don’t have many options to run to these days. Indeed, with interest rates at historically low levels, the overall demand for fixed-income securities remains depressed, despite a solid pickup in demand for bonds today.
Looking ahead, the investment community will turn its attention to Corporate America next week as fourth-quarter earnings season begins to heat up. The earnings news will be dominated by the financial names, with heavyweights JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report), Wells Fargo (WFM), Bank of America (BAC), American Express (AXP - Free American Express Stock Report), and Citigroup (C) all on the docket. Other notable reporters include Dow-30 components General Electric (GE - Free General Electric Stock Report), Intel (INTC - Free Intel Stock Report), and UnitedHealth Group. Meantime, the economy will also give investors plenty to think about, with data due on retail sales (Tuesday), producer prices (Wednesday), consumer prices (Thursday), and housing starts and industrial production (Friday). We will also get the Federal Reserve’s latest Beige Book summation of economic conditions on Wednesday afternoon. That report is expected to be highly scrutinized for clues to what the Federal Reserve might do at its monetary policy meeting later this month, which will mark the first time the policymakers convene under the leadership of Janet Yellen. -William G. Ferguson, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned
12:35 PM EST - The stock market is putting in a mixed showing today in response to the disturbing employment report (see below). At past noon in New York, the Dow Jones Industrial Average is off 35 points; the broader S&P 500 Index is lower by two points; and the technology-heavy NASDAQ is down five points. Market breadth is slightly positive, as advancing issues are ahead of decliners on the NYSE. However, these figures are less favorable on the NASDAQ. Meanwhile, the various market sectors are putting in a divided performance, too. There are some gains in the basic materials sector, thanks to strength in the mining stocks. Notably, gold is trading higher today, at $1,243 an ounce, and silver is firming up, too. The utilities are also having a good session. In contrast, the financial issues are slipping, and the healthcare sector is trading lower, as well.
Technically, the S&P 500 Index has been struggling to make any meaningful progress this year. Ultimately, the bulls seem to be a bit fatigued, as the market has been stuck in a trading range for the first several days of 2014. Volumes, too, have been a bit light, and that may suggest a lack of commitment. The VIX is up just slightly today, but still under 13, which is a relatively low reading. At this point, a catalyst may be needed to push equities higher. Stocks may get some help from fourth-quarter earnings reports. However, this assumes the numbers beat expectations, and guidance is maintained, if not lifted.
As noted, traders received some disquieting economic news today. Specifically, the non-farm payrolls rose by 74,000 in December, which was just a third of the gain anticipated. The shortfall is partly being attributed to harsh weather, and this may play a role again in January’s figures, too. Meanwhile, the headline unemployment rate dipped to 6.7%, as the labor force contracted. Ultimately, traders did not seem to know how to react to the news. On the one hand, some may be thinking that the Fed will now be less aggressive about tapering its asset purchase program. However, others may be disappointed that the economy is not expanding fast enough, and worried that corporate profits will be less robust. Elsewhere, concerns about the economy may be rekindling interest in the bond market. Notably, some buying here today has the yield on the 10-year note back below 3%, and this is positive for stocks.
Meanwhile, in the corporate arena, the fourth-quarter earnings season has begun. Specifically, Alcoa (AA) shares are trading lower, after the aluminum giant released weaker-than-expected results. In apparel, Abercrombie & Fitch (ANF) stock is up sharply, as that company issued an encouraging outlook. - Adam Rosner
At the time of this article’s writing, the author had positions in Alcoa (AA).
Stocks to Watch from The Survey – Fourth-quarter earnings season is upon us, as Alcoa (AA) reported December-period results after the market closed yesterday. The aluminum maker’s financials were disappointing, and the stock is trading notably lower ahead of the bell in response. Elsewhere, retailers remain in the spotlight, as many of these companies have been reporting holiday-period sales and updating their outlooks. The biggest disappointment was from department store operator Sears Holdings (SHLD), which forecast a massive loss in the January term, causing the equity to move sharply lower in the premarket. The stock of Fifth & Pacific (FNP) is also moving decidedly lower in pre-market trading, after the apparel company announced several updates, including preliminary 2013 results, the departure of CEO William McComb, and a name change to Kate Spade & Company. Shares of discounter Five Below (FIVE) and big-box retailer Target (TGT) are also indicating lower openings after those companies provided updates.
It was not all bad news on the retail front, however, and shares of teen clothing seller Abercrombie & Fitch (ANF) and jeweler Tiffany & Co. (TIF) are both moving higher ahead of the bell after updating guidance, with ANF showing considerable strength. Finally, although December sales at apparel and accessories retailer The Gap (GPS) missed the mark, the company said its fiscal 2013 earnings should still come in near the high end of its previously announced range. – 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 - It was truly an up-and-down day on Wall Street yesterday, as somewhat skittish equity investors awaited the Labor Department's closely tracked monthly report on non-farm payrolls and the unemployment rate that was issued moments ago (see below), while others with more of a historical bent sought to draw conclusions from the weaker price action over the first five trading days of the new year. That period, along with the full month, is believed by some to have predictive value.
As to yesterday's performance, stocks got out of the gate quickly, with the Dow Jones Industrial Average racing to an early gain of better than 60 points, buoyed, we sense, by a better-than-expected report on weekly jobless claims issued about an hour before the start of the new trading day. Then, just as quickly, the gains evaporated, and at their nadir in late morning, the leading averages all had dipped into the red, with the aforementioned 30-stock blue-chip index falling some 80 points into the minus column. However, a solid 30-year Treasury bond auction helped to pare the deficit, and by the early afternoon, the leading averages were threatening to go positive once again.
But that enthusiasm didn't last long. And shortly thereafter, the market again headed south, with all of the averages pressing a bit more deeply into the loss column. What followed was a series of alternating buy and sell programs that caused the indexes to ebb and flow in and out of positive territory. As noted, the principal influence was the pending December employment report. It seems that neither the bulls nor the bears wanted to make big bets ahead of that key issuance. That is because surprises, both positive and negative, can affect trading in a big way. Also, some market watchers were put off by Wall Street's weaker cumulative price action for the first five trading days of the new year. Stock market lore holds that the trading pattern for this brief stretch can act as a proxy for the full year. We do not attest to the veracity of such conclusions, nor to the reliability of the view that January, itself can be a barometer, but we do point out that this early stretch was the weakest in more than a half decade.
Meanwhile, after this back-and-forth action, the market wound up closing a nervous session on a suitably mixed note, with the Dow and the NASDAQ both lower, but the small- and mid-cap indexes edging slightly into the black, as weary equity investors awaited the Labor Department's celebrated employment release. Investors also were awaiting the official start of fourth-quarter earnings season, which kicked off after the close of trading yesterday with the release from aluminum giant and former Dow component Alcoa (AA), which reported less-than-compelling figures, after a large write down for the period, at least judging by the somewhat negative reception accorded the issue in after-market activity, and thus far in the pre-market hours this morning.
However, the big report to be digested was the aforementioned payroll survey. As to that issuance, the Labor Department affirmed that the nation added just 74,000 jobs last month, which was well below the 190,000 gain that had been expected, while the unemployment rate fell from November's 7.0% to 6.7%. The forecast had been for a flattish result. Such a release could well alter the expectation that the Federal Reserve will retain an orderly schedule for monetary tapering. Indeed, the low job additions are likely, if sustained in subsequent months, to slow the process down.
As to the reaction to this report, the markets in Asia overnight were generally lower reflecting some nervousness ahead of the jobs report, while stocks are nicely higher in Europe thus far this morning. And on our shores, the early read on the jobs report is less than compelling, even if it could lead to a slower tapering effort. Thus, the futures, which had been strongly higher before the release, have been jumping all over the place and now suggest a slightly higher opening when trading commences in less than an hour from now. To wit, the Standard and Poor's 500 Index futures are now up four points, while the NASDAQ is ahead by seven points, after having been up by some 24 points before the report's issuance. Bonds, meantime, are rallying on the weak job creation figures. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.