After The Close - Stocks fell sharply to close the week on concerns over the health of the global economy. At the close, the Dow Jones Industrial Average dropped 460 points; the NASDAQ lost 196 points; and the S&P 500 sank 54 points. Market breadth affirmed the weakness on the major averages, as declining stocks easily outpaced advancing issues.
Today’s troubles started overseas, where data showed an index of German manufacturing fell to its lowest level since 2012. That news pushed the yield on the German 10-year note into negative territory, if slightly, for the first time in a few years.
The weak data out of Germany helped to spark a selloff in European equities and a rally in bond prices (bond yields move in the opposite direction of prices).
That backdrop carried over to our shores, pushing down the yield on the benchmark 10-year Treasury note to 2.44%, after entering the week at 2.59%. In recent days, investors had been presented with somewhat of a conundrum in that both stock prices and bond prices had been trending higher, when often one does but not the other. At least for today, the bond market’s view was seen as the correct assessment.
As might be expected, the defensive-oriented utilities sector shined in the latest session. Shares of homebuilders also exhibited relative strength as lower mortgage were seen as spurring buyers. A favorable reading on sales of existing homes in February also helped sentiment. Not much else was able to buck the downtrend, though. Stocks finished near their session lows.
In some respects, a selloff was probably overdue. Stocks have been rallying after the Federal Reserve shifted to the sidelines and on hopes for a trade deal with China. But recent indications are that tariffs may not be taken off of the goods from China right away even if a trade accord is reached. The Trump Administration may only take off the tariffs if it sees compliance with terms is achieved. That complicating factor did not help the mood on Wall Street.
To be sure, the concerns about growth that boiled over today have been close to the surface for some time. Despite the stock market’s poor performance on Friday, at this point the selloff probably can be viewed as normal profit taking. The U.S. economy is still expected to pick up as the year moves along. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The equity market did an about-face late on Wednesday. On point, it rose sharply after the Federal Reserve voted to keep interest rates unchanged at its FOMC meeting and suggested rather strongly that it would not raise them at all this year. Stocks would then turn notably lower, as worries increased that such a pronounced dovish turn perhaps meant that it was concerned about the health of the underlying economy. Then, yesterday after a weak opening, the market turned nicely higher during the first hour of trading, with the S&P 500 Index and the NASDAQ leading the way.
Helping the stock market in the first full session after the FOMC meeting was a stealth gain in the shares of technology giant Apple (AAPL – Free Apple Stock Report). That issue surged more than six points in early dealings yesterday on optimism about new product launches and brokerage house upgrades. Overall, the gains in the market were initially tempered by worries about the U.S. economy. And there were reasons for such concerns. To wit, not only did the Fed, by its actions, express uneasiness about future growth prospects, but the latest reports on employment, industrial production, and business fixed investments showed a marked slowing in growth.
Individually, meantime, it was a far less-compelling story for Biogen (BIIB), as the giant health care concern halted trials for a drug designed to treat Alzheimer's Disease. That issue tumbled nearly 30% on the news. Also of note, there was growing concern among some domestic and international companies about the decelerating pace of global business activity. Still, after an early hesitant rise, equities suddenly took off as we passed the 90-minute mark of the trading day, with the Dow Jones Industrial Average catching up to the other indexes and surging by more than 160 points as we neared the two-hour mark of the session.
The gains then continued to come, and as we moved into the afternoon, the Dow climbed to an advance of more than 225 points, with that index continuing to be led by Apple, which by mid-afternoon was ahead by some eight points. Other tech stocks, including Micron Technology (MU), joined the party, rising notably during the session. In addition to the tech bounce, some investors were increasingly mollified by the Fed's dovish pronouncements, sensing that stable interest rates would enable the economy to gradually move beyond its current soft spot, to the advantage of corporate earnings later in the year.
The equity market headed still higher as we moved into the afternoon's latter stages, with the Dow ascending the 26,000 level at one point, equating to an intra-day gain north of 260 points. It seems that investors, for one day at least, are fully on board with the Fed's monetary instincts. The upturn would persist into the close, although most of the indexes would end the day's activity a bit below their best levels. In all, the Dow would finish the day up 217 points; the S&P 500 Index would tack on 31 points; and the NASDAQ, boosted by stellar gains on the tech side, would add 110 points.
So, after this impressive near wire-to-wire win for the bulls, the markets in Asia were a bit higher in the overnight period. In Europe, meantime, the principal bourses are lower on economic worries. Further, interest rate yields, up very grudgingly yesterday, are showing early declines this morning and U.S. equity futures are lower as investors await data on sales of existing homes. The last housing metric, sales of new homes, had proven disappointing. So, this figure will be closely watched. A solid increase in monthly volume (covering February) is the forecast. - Harvey S. Katz, CFA