After The Close - Stocks fell sharply today as escalating tensions with North Korea gave investors pause. At the end of the day, the Dow Jones Industrial Average slid 234 points; the NASDAQ dropped 60 points; and the S&P 500 dropped 19 points. As to be expected, market breadth was very poor, with declining issues widely outpacing gainers.

Truth be told, some volatility in September had been broadly expected by the investment community. Conditions had simply been too calm for too long. Sharp declines in the major averages are never that easy to dismiss, though. There are always concerns that a bigger pullback or even a correction could follow. Based on current possibilities for the economy, interest rates, and corporate profits, no such difficulties would appear to lie ahead.

But today’s selloff seemed to stem largely from the complicated geopolitical dealings with North Korea, which apparently soon plans another missile launch. Nations around the globe condemned North Korea’s recent military initiatives, and the worry is that a missile test gone wrong could provoke a sharp response, most notably from the United States. Wall Street is always uncomfortable with such unknowns. For safety’s sake, hopefully cooler heads will prevail.

Perceived safe havens, such as bonds and gold, enjoyed an upbeat session in view of the troubles stocks were having today. The yield on the benchmark 10-year Treasury fell to 2.07% (yields move in the opposite direction of prices) from its 2.12% close on Friday. Today’s dip put extra pressure on banking stocks, since their asset yields are tied to some degree to bond yields. Yields have been falling for much of 2017.

Gold prices rose about 1%, though, and crude oil prices also got a lift from the restart of refineries on the Gulf Coast of Texas, which will be resuming purchases.  Fears of potential damage to installations from Hurricane Irma in the Gulf also provided a lift. Oil in New York trading rose by around $1.30 a barrel, to $48.62.

The uptick in oil prices and the easing in bond yields allowed the energy and utilities sectors, respectively, to exhibit relative strength on a bad day for stocks.

Among individual names, shares of Dow-30 component United Technologies (UTX -Free United Technologies Stock Report) declined by a greater percentage than the overall market after it announced its much anticipated full-priced merger with Rockwell Collins (COL). - Robert Mitkowski

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


12:00 PM EDT - The first trading week of September, a month that has not been historically good for those long equities, is off to an inauspicious start. Following a good five-day stretch for equities last week, which pushed the broader S&P 500 Index to the doorstep of its all-time high, and the long holiday weekend, traders who returned to the market this morning were greeted with some more unsettling news from overseas. Specifically, reports that North Korea had tested another missile in its attempt to expand its nuclear program, which brought a harsh response from the Trump Administration—United States UN Ambassador Nikki Haley said that North Korea is begging for war—unnerved investors this morning and we are seeing significant selling.

Thus, as we reach the noon hour on the East Coast, all of the major U.S. equity averages, including the aforementioned S&P 500 Index, are trading in negative territory. Investors should note the spike in the S&P 500 Volatility Index (or VIX), which is also known as the “fear gauge.” The escalating geopolitical tensions with North Korea is mainly responsible for the nearly 15% increase in the metric, but there other factors that are adding to the market’s volatility, including concerns about what the return of Congressional leaders to the contentious Washington D.C. political scene will bring, the aftermath of Hurricane Harvey and the approach of Hurricane Irma, the looming debt-ceiling talks, and the heated immigration battle on Capitol Hill.

The aforementioned topics have been mostly offset in recent weeks by solid data on the U.S. economy and growing sentiment that the Federal Reserve, which will hold its two-day monetary policy meeting later this month, will continue to take a very measured approach to tightening the monetary reins. Such would likely be good news for the sustainability of the historic bull run, as the continued low interest-rate environment would create very few attractive alternatives to stocks in the coming months. This morning, the yield on the 10-year Treasury note is down again, falling to below 2.10%.

Not surprisingly, we are seeing some sector rotation among the 10 major equity groups. The aforementioned decline in bond yields is hurting the financial stocks, most notably the banks. The industrial stocks are also down today, despite some major M&A news in the sector this morning, with United Technologies (UTX - Free United Technologies Stock Report) making it official that it plans to acquire Rockwell Collins (COL) for $30 billion, including the assumption of debt. Conversely, we are seeing some interest in the more-defensive oriented and higher-yielding consumer staples and utilities groups. They are benefiting from the aforementioned drop in fixed-income yields and for their safe-haven qualities, which are often desired when there is a spike in market volatility, which we are seeing today.

Looking ahead to the remainder of the trading day, we think it would take a Herculean task on the part of the bulls to turn the tide of trading on Wall Street; the Dow Jones Industrial Average was down more than 180 points at its intra-day nadir this morning. There are a number of factors worrying investors today, including the aforementioned escalating tensions with North Korea and the Trump Administration’s tough stance on immigration, which many pundits worry may comprise with President’s business-friendly reforms from gaining the necessary support in Congress. As mentioned above, Congressional leaders returned from their August recess this morning. 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.


Before The Bell - Wall Street will soon return from the long Labor Day weekend, which we hope was a safe one for our readers, with its momentum intact following a supportive session to start the new month on Friday. As to the market's performance to start the month, it was underpinned by news that the nation's employment rolls expanded once again, but at a notably slower pace in August than in July. Specifically, the gain in non-farm payrolls was 156,000 (whereas a rise of 180,000 had been the consensus view), while job gains for June and July were revised downward. That weaker showing could keep the Federal Reserve at bay until 2018.

The slower job growth, along with data showing a 0.6% drop in construction spending in July, was balanced out by the report of a nifty gain, to a six-year high in manufacturing activity in August. That tally from the Institute for Supply Management reflected gains in such key components as employment, production, supplier deliveries, and backlogs. We caution, though, that all of these monthly reports are fluid, so any marked shift in momentum going forward could change the Fed's plans going forward. For now, however, the weaker jobs gain had Wall Street smiling from the outset of trading, and the upturn held through the morning.

In all, as we reached the noon hour in New York, the Dow Jones Industrial Average was up some 50 points, bringing that composite back up to the 22,000 mark, while the NASDAQ, the big winner in recent sessions, was just modestly higher. These gains occurred while the horrendous damage from the hurricane that struck parts of Texas last week was wreaking havoc on the lives of residents and the economy across much of the state. The costs of that disaster continue to go up, and there likely will be some toll, initially, on GDP before offsetting help in the form of rebuilding efforts are put into place.

Meanwhile, as the afternoon got under way, the stock market firmed further, with the Dow's gain nearing the 90-point mark on those stabilizing interest-rate expectations. Not only is the central bank likely to opt for a pause in rate hikes due to the slowing employment growth, but also because of the decelerating wage increases and the consequent lowered expectations for inflation. The market's latest show of strength may also be a result of the resilient nature of the expansion, which is unlikely to founder even though the damage inflicted on Houston and its surroundings by the hurricane will exact a toll in the near term.    

The market continued its climb into the latter stages of the afternoon, with the key psychological question being whether the Dow would sustain the 22,000 level as the session ended--which it did not, due to some last-minute retracement, gaining 39 points. The S&P 500 Index, the NASDAQ, the S&P Mid-Cap 400, and the small-cap Russell 2000 all rose in tandem, with the latter two doing a bit better than their larger-cap peers. Breaking the day down further, most of the leading equity groups finished higher, with the basic materials and energy sectors leading the way, even as oil prices just held steady, while twice as many stocks rose as declined on the NYSE.  

Looking out at a new week now and peering overseas for some suggestion as to how the market will do, we look overseas, where the averages were mixed in overnight dealings in Asia, while in Europe, the leading bourses, save for the Paris CAC 40 are trending a bit higher, despite the tensions out of North Korea. However, the U.S. futures are showing losses at this hour, on those tensions from North Korea. Elsewhere, gold is up to near $1,340 an ounce; oil is higher as some refineries come back on stream following the hurricane; and Treasury yields are lower.   - Harvey S. Katz, CFA 

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