After The Close - The stock market started quite positively today, as trade tensions between the U.S. and China eased following an encouraging statement from China . Gao Fang, a spokesman for China’s Ministry of Commerce, stated that his country “rejects an escalation of the trade war” and is “willing to solve the problem with a calm attitude.” This sent the Dow Jones Industrial Average higher by 311 points in the first few moments of trading, while the other indices rose in tandem. The composites consolidated their gains near that area for a spell before extending them in the second half of the trading day, reaching fresh highs. Still, the composites tapered off from their highs in the final portion of trading. Overall, the Dow Jones Industrial Average closed up 326 points, the S&P 500 was higher by 37 points, and the NASDAQ gained 117 points.
Additionally, market breadth was very positive, as advancers outpaced decliners by a 3.3-to-1.0 ratio. Industrial and technology equities were among the best performers on the day, aided by better trade sentiment. However, the consumer staples stocks were weak.
In commodity news, oil prices were higher today, as demand expectations increased, as speculators think greater energy use will occur in the coming months due to potentially higher worldwide trade. Meantime, U.S. Treasury bond yields were higher across the board. The yield curve is still inverted, but it has flattened a bit as long-term yields rose more than those in the short term. Additionally, the VIX Volatility Index was lower today, as demand for options protection fell.
Looking ahead to tomorrow, a substantial amount of economic data will be released. This includes the University of Michigan’s Consumer Sentiment Index for August, while reports on personal income and spending for July are on the docket. Meantime, a few companies are slated to report quarterly results. Overall, we think that traders will be positioning themselves ahead of the three-day weekend for the Labor Day holiday and that trading tomorrow will be mostly affected by any developments in the U.S. and China trade disputes. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - A further inversion in the yield curve, in which longer-dated issues, such as the 10-year Treasury note, yield less than shorter-term paper, hit Wall Street yesterday morning, driving the stock market down notably in early trading. To wit, after the yield on the key 10-year Treasury fell below 1.46%, the stock market fell back, with the blue chip Dow Jones Industrial Average quickly losing some 140 points and the NASDAQ falling by 55 points. That early selling was a carryover to the weak close on Tuesday when the Dow would surrender 121 points as trading ended.
However, as has been the case so often this year, the stock market threw off its initial worries, and as we passed the half hour mark of trading, the Dow and the S&P 500 Index had turned modestly higher, while the NASDAQ had shed about two-thirds of its early deficit, even as Treasury yields remained at session lows. The advance would wilt somewhat, so that as we passed the first hour of trading, the equity market would have a mixed look to it, with the Dow and the S&P 500 still grudgingly higher, but the NASDAQ holding in the red to a modest degree.
The stock market then took off and within minutes the Dow was ahead by more than 115 points, making for a 250-point turnaround in less than an hour. It would gain additional ground in the coming minutes, taking the NASDAQ into the green at the same time. All of this improvement came as the yield curve showed no signs of getting over the increasing inversion. And the gains kept on coming as the morning wound down, with the Dow's advance moving past 200 points as the first half of the session drew to a close. Higher oil prices led the way, but an even bigger upturn likely was prevented by growing recession fears.
Meanwhile, a pair of individual winners yesterday morning were shares of UnitedHealth Group (UNH – Free UnitedHealth Group Stock Report) and NIKE (NKE – Free NIKE Stock Report). Also gaining were shares of Exxon Mobil (XOM – Free Exxon Mobil Stock Report) on the rise in oil prices. The market then would sustain those strong gains, which were led by the Dow, into the middle of the afternoon. Then, with the banks and the energy companies in the lead, the stock market would firm up some more as we entered the final hour of trading, with the Dow hitting the 250-point mark. The S&P 500 and the NASDAQ, meantime, would continue to lag somewhat.
The session's close brought continued strength for the Dow and the other indexes, as an advance in oil prices on declining oil stocks helped the energy group forge ahead strongly. However, the session was marked by low volume as traders geared up for the long Labor Day weekend upcoming. In all, at the end of the session, the Dow was ahead by 258 points; the S&P 500 was up 19 points; and the NASDAQ was in the green by 30 points, with many more stocks rising than falling on the session. Treasury note yields would remain near session lows, meantime, and despite the market's sharp rise, nervousness remained.
Looking out to the penultimate session of this week and months, we see that stocks were mixed in Asia overnight, while in Europe, the leading bourses are pressing higher so far this morning. Also, yields on the benchmark 10-year Treasury are up to 1.50% and oil prices are pushing higher still after the big run-up yesterday. Finally, U.S. equity futures seem poised to open the new trading session with strong additional gains on constructive trade comments by China. – Harvey S. Katz, CFA