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After The Close - U.S. stocks slipped slightly from their historically high levels for most of the day on Wednesday, continuing the modestly bearish tone from yesterday’s session. Declining shares outnumbered the advancers, and each major index spent the majority of the day modestly in the red. Trading on the second day of this holiday-shortened week was influenced primarily by a Beige Book survey from the Federal Reserve that contained few surprises, while many investors also closed out of highly valued positions following last week’s uptick.

At 2:00 P.M. (EDT), the Federal Reserve’s regional survey of anecdotal economic reports revealed a growth picture in line with mostly cautious expectations. The “modest-to-moderate” growth included stagnating activity from the Boston and Chicago branches, as well as a flattening of expansion in the New York branch. This moderation in the outlook subsequently sent financial issues lower, as the sector had benefited from the assumption that the central bank would move rates higher at least twice more by yearend. Still, given the late-day uptick, we take it that most investors are not too concerned about the mixed results.

Meanwhile, oil had a rough day, with U.S. crude shedding roughly 3% in value. The reason, per usual, is investors betting against OPEC’s nine-month drilling accord. Other nations, particularly Russia, are also tied to the deal, which many had hoped would run longer and deeper than its prior installment. Elsewhere, Libyan production appears to be recovering, while a global glut of fuel can be seen stateside, where inventory levels remain elevated. Accordingly, the energy sector was among the biggest aggregate losers on the day.

In all, despite the daylong advantage held by the bears, the final hour saw each index pare its losses. With a dearth of earnings or updates from the business beat, we think profit taking was a major force moving the averages lower throughout the day. While additional disappointments on the economy could spur a more sustained broad-based selloff, the bullish tone remains intact, for now.   - Robert Harrington

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

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11:55 AM EDT - The selling is continuing on Wall Street today, with investors taking some profits off the table after the major equity averages started the abbreviated trading week at or near all-time highs. Investors are looking a bit skittish ahead of this Friday’s report on nonfarm payrolls for the month of May, which, along with this afternoon’s latest Beige Book summation of economic conditions from the Federal Reserve, may give the investment community a better idea of how the central bank will proceed with regard to monetary policy over the remainder of 2017. The consensus expectation is that the Fed will raise interest rates at next month’s FOMC meeting, and we think that this potential tightening is already baked into the market’s valuation. A growing sense that many of the business-friendly reforms that President Trump promised after his victory may now be more likely to take place in 2018. That prospect could be taking a bit of the wind out of the sails of the bulls too.

Thus, as we approach the midday hour on the East Coast, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index are all trading in the red, extending yesterday’s setback. Investors should also note that the small-cap Russell 2000 and the S&P Mid-Cap 400 Index are holding bigger losses, which may well be an indication that the bears are going to be more formidable at today’s closing bell. Market fundamentals show a plurality of declining issues on both the Big Board and the NASDAQ and more down than up arrows among the 10 major equity groups. However, the market has pared some of its earlier losses within the last hour.

We are seeing some sector rotation on display today. The sectors that are faring well are the more defensive-oriented, higher-yielding ones, with interest in the consumer staples, utilities, and telecommunications groups. There also is some notable buying in the healthcare group, with the pharmaceutical stocks providing the leadership. Conversely, we are seeing some selling in the more economically sensitive areas, with energy, technology, financial stocks trading in the red. In particular, the financial group is under pressure after banking giants JPMorgan (JPM - Free JPMorgan Stock Report) and Bank of America (BAC) hinted at revenue weakness in the current quarter.

As noted, our sense is that with the lack of earnings and economic news this morning, investors don’t have much incentive to push stocks higher from their already lofty perches, so, hence, we are seeing some profit taking. Looking ahead to the remainder of the session, we think the Beige Book release this afternoon (at 2:00 P.M. EDT) has the potential to play a role in which way the market heads toward closing bell. Right now it is looking good for the bears, but we shall see. Stay tuned. - William G. Ferguson

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

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Before The Bell - The bulls and the bears returned to the trading pits yesterday morning following the long Memorial Day Weekend and immediately took an overbought stock market lower in some apparent profit taking. This early selling, which was contained, never totaling more than about 70 points in the Dow Jones Industrial Average, commenced early, with the session's nadir occurring about 45 minutes into the trading day. Sparking the somewhat lower price adjustment was a slightly disappointing showing by the Conference Board's Consumer Confidence survey for May. This issuance offset a better report from the government on income and spending.

Specifically, in the latter report, issued an hour before the stock market opened, the government posted that U.S. Personal Income and Spending for April had met expectations after two consecutive monthly shortfalls. Specifically, personal income rose by 0.4% last month, as did personal spending. In March, income had risen by 0.2%; there had been no change in spending in March. Also, the Federal Reserve's preferred measure of price growth, the Core PCE deflator, rose to 1.7% annually, from 1.6% the month before. However, both totals are a little below the Fed's targets. Still, the reports were constructive.       

That was not the case with the Consumer Confidence Index, which came up short of expectations. Specifically, this index came in at 117.9 for the current month. That was shy of both the 119.8 result forecast and the April tally of 120.3. In March, this index had jumped to 125.6, which was the highest figure since December of 2000. Breaking the report down, the Present Situation Index rose marginally from 140.3 to 140.7; the Expectations Index eased from 105.4 to 102.6. Notwithstanding the overall slippage, confidence remains quite high for this late in the business up cycle.

Nevertheless, the stock market remained lower throughout the morning, if modestly so, and into the afternoon. Continuing to help the market are low interest rates, with the yield on the 10-year Treasury note easing back to 2.22% in afternoon dealings. The note had begun the year closer to 2.50%. At the same time, a key housing price index showed a further gain in property prices, while Dallas Federal Reserve President Robert Kaplan suggested in an interview that the rate of economic growth is likely to continue at closer to 2% than the 3% forecast by the Administration.    

The mixed backdrop continued to keep some pressure on the stock market as the afternoon progressed, with the Dow' Industrial's deficit staying in the 30-50-point range for the most part. Breaking the day down, about half the leading equity sectors were higher, buoyed by the high-yielding telecom and utility groups, while oil stocks weakened, although a modest comeback in crude prices late in the day did help the group to pare its earlier losses. Meanwhile losing stocks continued to hold a moderate advantage on gaining issues.     

The market then remained modestly lower into the close, with continued range-bound trading throughout. As the final bell sounded, the Dow was still off 51 points; the S&P 500 Index was down three points; and the NASDAQ, in spite of a move by Amazon (AMZN) past $1,000 for the first time ever, eased back seven points. Elsewhere, as before, losing stocks continued to hold an edge on gaining stocks on the NYSE, although the differential was not formidable. All in all, it was a ho-hum day for a notably overbought equity market.

Looking out to the second day of the week, and to some mixed action overnight in Asia and uneven trading so far in Europe this morning, we see that oil is moving lower on higher output after a dip yesterday; Treasury note yields are fairly flat; and precious metals prices are off a bit. Meantime, after yesterday's setback, U.S. futures are showing little change ahead of the open. Also, of note, the Federal Reserve is due to release its Beige Book summation this afternoon, which will give a further idea of upcoming lead bank intentions.   - Harvey S. Katz 

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