After The Close - The stock market started in the red today, as traders reduced their equity exposure ahead of the start of earnings season. The S&P 500 and NASDAQ were notably in the red, but the Dow Jones Industrial Average traded just under breakeven levels, buoyed by a strong quarterly performance out of JPMorgan Chase (JPM – Free JPMorgan Stock Report). A few robust earnings reports started to trickle in, and the composites began to march higher for a spell. The three major indices reached an all-time high before noon. However, the stock market fell as news broke that tariffs on goods from China will remain in place until after the 2020 United States Presidential election. This dropped the composites back into the red. The final portion of the day was somewhat directionless, trending not too far away from yesterday’s close. All told, the Dow closed higher by 32 points, the S&P 500 fell five points, and the NASDAQ was lower by 23 points.
Moreover, market breadth did not favor the advancers nor the decliners by a large amount. Healthcare stocks were among the best performers on the day, while REITs were among the weakest.
In commodity news, oil prices rose today despite a decrease in global uncertainty and tensions. The crude oil inventory report tomorrow has traders expecting a build in supplies. Meantime, the U.S. Treasury bond yields were largely lower today, and the yield curve flattened a bit, which is normally a negative for financial earnings. The VIX Volatility Index rose slightly, as demand for options protection increased.
Looking ahead to tomorrow, a good amount of economic data will be released, including the Energy Information Administration’s weekly report on crude oil inventories. Additionally, the Empire Manufacturing Index for January will be issued. Furthermore, several large U.S. banks, including Dow-component Goldman Sachs (GS – Free Goldman Stock Report), will report quarterly earnings tomorrow. Too, we expect trading to be affected by a few significant earnings reports after the bell today. - 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 - The first day of the new trading week was a win for the bulls, in wire-to-wire fashion. The major equity indexes started yesterday in positive territory, with investors responding well to no escalation in the geopolitical tensions in the Middle East over the weekend. Then as the session progressed, the buying picked up a bit more with the investment community pleased to hear that the United States was in the process of removing China from its list of countries designated as currency manipulators. (The Asian nation was placed on the list in August.) That pending action, along with tomorrow’s signing of the partial trade deal (the first phase) between the two economic superpowers, provided more hope that the two sides will continue working toward a more encompassing agreement in the coming months. And investors, as noted, responded in kind.
At the conclusion of yesterday’s bullish session, the Dow Jones Industrial Average, the NASDAQ Composite, and broader S&P 500 Index were 83, 95, and 23 points to the upside, respectively. The selling was broad-based, with advancing issues far outpacing decliners on both the New York Stock Exchange and the NASDAQ. Too, nearly all of the 10 major equity groups finished in positive territory, with the only laggard being the healthcare sector. The news that United States was removing China from its currency manipulator list was taken as a sign that the frayed trade relationship between the two countries was improving. Not surprisingly, the technology and basic materials stocks did well yesterday, as China is a big buyer of basic materials and technology. The technology sector was up nearly 1.5% on the day.
Turning to the day at hand, the fourth-quarter earnings season kicked off this morning with the latest quarterly results from Dow-30 component JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report). Specifically, the largest U.S. bank reported earnings of $2.57 a share, far exceeding the Wall Street consensus estimate, on a healthy top-line advance, to $29.2 billion. The beat on the top and bottom lines was fueled by higher lending and deal making. Wall Street hopes the strong JPMorgan data are a sign of good things to come from Corporate America as the fourth-quarter earnings season gets underway.
We also got some news from the business beat this morning. Just moments ago, the Labor Department reported that consumer prices rose by an unimposing 0.2% last month. The December increase was down modestly from the 0.3% advance registered in November. The report is another sign that inflation remains benign, and will likely put no additional pressure on the central bank to tighten the monetary reins in the foreseeable future. This is typically a good backdrop for equities, as we saw for most of last decade, which included the ongoing historical bull run on Wall Street.
With less than an hour to go before the commencement of the new trading day, the equity futures are presaging a relatively flat opening for the U.S. stock market. We are seeing a similar performance overseas this morning, as the major European bourses are none too far removed from the neutral line as trading moves into the back half of the session on the Continent. Stay tuned. – William G. Ferguson