After The Close - The stock market opened sharply lower this morning, continued to weaken into the early afternoon, but reversed course, paring its losses considerably. At the close of trading, the Dow Jones Industrial Average was down 249 points; the S&P 500 Index was off 22 points; and the NASDAQ, which made it into positive territory briefly, closed off five points. Nonetheless, the selling was quite widespread today, with winners leading advancers by about two to one on the NYSE. Earlier, the edge had been ten to one.
The energy sector led the broader market lower today, with the price of crude oil down almost 6%, to just under $27 a barrel. Lower commodity prices have clearly been unsettling to traders. Many energy and materials companies have seen their share prices decline dramatically over the past several months, creating a fragmented equity market. On balance, the healthcare group displayed a degree of relative strength today, thanks to a positive showing in the biotechnology names.
Once again, the earlier selloff here in the United States may well have started overseas. In Asia, markets traded lower overnight, with considerable losses on Japan’s Nikkei. Further, the situation in Europe was not any better, with the major bourses losing ground, as well. Lately, investors have been worried about the health of the global economy, with special attention being paid to China.
Meanwhile, there were a few economic items reported this morning, but traders largely looked past them. Of note, the Consumer Price Index declined 0.1% in December, thanks, in part, due to lower energy costs. Housing starts dipped to 1.149 million units, annualized, where economists had been looking for a better showing. Building permits, which tend to be a leading indicator, also fell during the month.
A few widely followed companies weighed in with their results over the past 24-hours. Specifically, Netflix (NFLX) delivered a decent report, but that stock was mixed. Meanwhile, International Business Machines (IBM – Free IBM Stock Report) shares fell, after the technology giant provided a disappointing outlook. It may be too early to tell how the fourth-quarter earnings season will shape up. So far, investors have not been overly impressed.
The stock market has been quite volatile lately. Today, we did see bargain hunters move in to support equities late in the day, and this was a constructive development. With the VIX reaching the 30 level, the market may have become oversold, at least for now. Many technicians will likely be looking for signs that market sentiment has become overly bearish, with selling reaching extreme levels. It is from that point that a meaningful rally may materialize. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:05 PM EST - The theme on Wall Street so far in 2016 has been, as goes the price of oil, so goes the equity market. That scenario is very much on display again today, as a sharp decline in the price of crude on both the New York Mercantile Exchange and on the Continent is weighing heavily on the equity market. The major U.S. equity indexes started today’s session deeply in negative territory and the losses have intensified further as we pass the midday hour on the East Coast.
No matter what market metric you look at today, the picture is not pretty. Indeed, the bears, emboldened by the continued plight of the energy sector, are once again having their way with trading both here and abroad. From a sector perspective, the biggest laggards among the many are the energy and basic materials groups, with continued worries about the health of the global economies, particularly output in China, pressuring commodities. Quite frankly, there is no place for wary investors to hide in the stock market right now, as even the most defensive equity groups are deep in the red. Overall, declining issues are swamping advancers on the Big Board and the NASDAQ, and the ratio of stocks hitting 52-week lows versus highs is staggering.
It is rather clear that the continued plight of oil is trumping all other data on Wall Street these days. Investors need not look any further than the lack of attention earnings reports have received the last few days. On point, shares Netflix (NFLX), a high-flying stock the last few years, are trading lower despite an encouraging quarterly report after the close of trading yesterday from video streaming service and original content producer. Joining Netflix in the red are shares of International Business Machines (IBM - Free IBM Stock Report) and Goldman Sachs (GS - Free Goldman Sachs Stock Report), which are lower after reporting quarterly results. A weak outlook is hurting IBM, while Goldman Sachs’ earnings were hurt by a sizable charge related to a bond settlement.
Meantime, the news on the U.S. economy was decent this morning, with the pace of both building permits and housing starts, while both down modestly sequentially in December, still comfortably above the one million level. This, combined with a benign reading on inflation, suggest that U.S. economy is still in expansion mode, despite the global economic worries. However, each report did little to help the battered bulls this morning.
Looking ahead to the remainder of the trading day, it would take a Herculean effort on the part of the bulls to change the mood on Wall Street. Such a scenario is looking unlikely today, given the sharply lower crude prices and the lack of supportive earnings news. The big question over the next few hours may well be how more times S&P 500 Index tests its 52-week low. We are in the midst of another huge selloff on Wall Street, with nary a place for unnerved investors’ long equities to hide. Investors should note that bonds are in high demand today, with the yield on the 10-year Treasury note, which moves inversely to price, falling to its lowest level since mid-October. There is also modest interest in gold, another safe-haven instrument for skittish investors. - William G. Ferguson
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
10:15 AM EST - The stock market opened the current session notably to the downside after major drubbings in Asia overnight and in Europe earlier this morning. And once again, the precipitating factor seems to be oil, as that beleaguered commodity appears unable to put in a floor. In all, a barrel of crude, which broke the $29 market on the downside yesterday, is now passing hands for less than $28 in New York, the low point since 2003.
Behind the latest drop in crude are oversupply concerns, which figure to only be exacerbated by the pending flow of oil from Iran. As to the market, the Dow Jones Industrial Average is off 313 points at this hour; the Standard and Poor's 500 Index is lower by 36 points; and the NASDAQ is off by almost 100 points. The down arrows are all over the map, with very few stocks gaining.
Meanwhile, in addition to oil, there also are concerns about earnings, with the latest Dow casualty being old-line computer giant International Business Machines (IBM - Free IBM Stock Report), which is off sharply this morning on those just-issued metrics, falling to a new 52-week low of $118 a share. There is simply no place to hide so far this morning. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Following a woeful first two weeks of January, Wall Street opened for business yesterday on this holiday shortened week with news of an in-line economic performance out of China, a modest uptick in oil prices, and a strong market showing in China overnight and in Europe in the early morning. Armed with this more positive backdrop, stocks began the session on our shores in what seemed as though it might well be a big win. On point, after a few minutes of trading, the Dow Jones Industrial Average had jumped to a gain north of 180 points.
The market remained in higher territory through the morning. However, once oil started to tick lower, the strong advance began to fade. And as we reached the noon hour in New York, the early triple-digit Dow advance had wilted and stocks were in the black, but less decisively. In all, crude, which had ticked above $30 a barrel earlier in the day, fell back to just below $29, settling in just above that level as the noon hour arrived on the East Coast. The pundits apparently were not impressed by the early move in crude, as some felt the upturn was just a temporary respite in a bear market for oil.
Meanwhile, there is a general belief that as oil goes, so goes the equity market. And that was true again yesterday, as an early rally in that beleaguered commodity helped stocks to get out of the gate quickly. Then, as the oil rally faded, and crude moved lower, stocks wilted too. Equities then turned negative in mid-afternoon, as oil fell sharply, losing more than a dollar a barrel in New York dealings, finishing up at just over $28. As to the market, there was some good news from UnitedHealth Group (UNH – Free UnitedHealth Stock Report), as its stock rose following the release of better quarterly results.
On the other hand, while that blue chip rose, some other Dow components, notably the oils and chemicals producer DuPont (DD – Free DuPont Stock Report), lost ground. As to the market, as noted, it turned negative in mid-afternoon, with particular weakness in the tech-laden NASDAQ, which moved about one hundred points from peak to trough during the day, as an earlier spirited rally faded once oil faltered. As noted, it is becoming difficult to sustain a rally of any sort these days. Even the financials, which generally did well on the bottom line yesterday, were unable to keep their early rally going, and finally headed lower.
Stocks then settled in at lower levels for a time as the afternoon proceeded. However, after the Dow had fallen back to a loss of almost 90 points, the market started to steady itself and even firm up somewhat, with the blue chip composite erasing its loss and turning green as the clock ticked down toward the close. The S&P 500 Index also went positive, as did the NASDAQ after a while, but just briefly. But the S&P Mid-Cap 400 Index and the small-cap Russell 2000 Index could not overcome their losses, closing off moderately.
All told, the Dow and the S&P 500 Index gained 28 points and one point, respectively, while the NASDAQ fell 11 points. This mixed tone could be seen in the 10 leading equity sectors, where about half advanced, including the utilities and the consumer non-cyclical stocks, while half lagged, led down the losing path by the energy and basic materials issues. In addition, there were about twice as many losing stocks as gaining issues on the Big Board.
Now, a new day is under way, and the early news, unlike yesterday, is troubling, as stocks in Asia dropped sharply overnight, while in Europe, lower oil is pummeling the equity markets, with the principal bourses all off about 3%. Meanwhile, oil is melting down, with a barrel of crude falling below $28--its lowest level since 2003. That setback and worries about our economy, Federal Reserve policies, and corporate earnings are combining to take the measure of our markets where the S&P 500 Index futures are off 30 points and the Dow futures are lower by more than 250 points.
Finally, in data just released by the government moments ago, we learned that privately-owned housing starts in December were at a rate of 1,149,000 units on an annualized basis. That was 2.5% below the upwardly revised November estimate of 1,179,000 homes started. Initially, the November tally had been estimated at 1,170,000 homes. Expectations for December starts had been 1,200,000. At the same time, the data showed that building permits, a more forward-looking metric were at a seasonally adjusted annual rate of 1,232,000 homes, or 3.9% below the November total of 1,282,000 properties. Here, though, the December result, while down, was a bit better than forecast.
At the same time, the government reported that the Consumer Price Index (CPI) eased by 0.1% last month. Expectations had been for a flat reading on consumer inflation. Meanwhile, backing out the volatile food and energy components to get the so-called core rate of the CPI, we find that prices edged up the expected 0.2%. These issuances did not affect the equity futures, which still point to another woeful start on Wall Street today. - Harvey S. Katz