After The Close - The equity market opened higher this morning, but reversed course, and softened quite a bit as the session progressed. Initially, traders seemed to be feeling more confident about the medical situation in China, as health officials have taken action to contain a serious virus that has broken out there. Given the size of China’s economy, Wall Street has concerns that a protracted epidemic could be problematic for global trade. At the close of the day, the Dow Jones Industrial Average was down 10 points; the broader S&P 500 Index clung to a one-point gain, and the NASDAQ managed to advance 13 points.
Market breadth was mixed, with advancers just ahead of decliners on the NYSE. The technology, consumer, and utility names managed to make progress, while the industrials and basic materials issues moved lower.
Meanwhile, in economic news, the real estate market seems to be in reasonably good shape. In fact, existing home sales increased to annual rate of 5.54 million units during the month of December. In addition, the FHFA Index showed home prices increased 0.2% in January. Tomorrow, we will get a look at the latest weekly initial jobless claims. The Conference Board’s leading indicators report for the month of December is also set to be released.
In corporate news, the fourth-quarter earnings season has finally gotten started. We recently heard from some widely held names. Of note, shares of International Business Machines (IBM – Free IBM Stock Report) moved up today, after the technology giant posted a better-than-anticipated revenue report. Meanwhile, Netflix (NFLX) stock dipped, after the media company provided a softer-than-expected business outlook. Elsewhere, shares of Johnson & Johnson (JNJ – Free J&J Stock Report) closed down, as that company put out a lackluster report.
Technically, stocks have made progress for much of January. However, it remains to be seen if the bulls can keep their buying campaign in place, or if a period of consolidation might be in order.
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 began the new trading week following the long holiday weekend, which had observed the birthday of Dr. Martin Luther King Jr, with hope by the bulls that we would see an extension of the vigorous January rally in the stock market that had seen the Dow Jones Industrial Average soar comfortably above 29,000. But this further gain was not to be as the market saw some early profit taking that would take the blue chips down more than 100 points in the morning. But as we entered the noon hour some buying surfaced and that would pare the losses.
In fact, the Dow would climb almost back to dead even, while the NASDAQ would enter the plus column. However, that resurgence of optimism would not last, as the Center for Disease Control would report that a traveler from China had been diagnosed with the first U.S. case of coronavirus in Seattle. That news, which came out early in the afternoon, would lead to a sharp drop in the Dow, pushing that index to a loss of just over 200 point by 2:20 PM (EST). The losses would be reduced by the close, but the blue chips would still be off by 152 points on the day.
Meanwhile, fears of that virus affected more than the Dow, as it clipped the wings of several airline stocks on fears of reduced travel abroad. Moreover, shares of casino and hotel companies were hit, with several stocks losing 5%, or more, on concerns that the virus outbreak in China would also dent international travel. In addition to the Dow, the small-cap sector was punished, with the Russell 2000 Composite losing almost 20 points. In all, this was the first setback by the blue chips in sex sessions.
One of the other factors in the Dow's steep loss was a $10.78-a-share drop (more than 3%) in the stock of Boeing (BA – Free Boeing Stock Report) on news that the giant, and now somewhat beleaguered, aircraft maker does not expect regulators to sign off on the troubled jet, the 737 Max 8, until June or July. Earlier, expectations had been that the aircraft might be back in business by the spring. Layoffs had previously been reported within the industry and the first-quarter GDP could be pared by 0.5%. Now, the second-quarter economy will be affected.
Still, not all of the news was downbeat, as technology giant IBM (IBM – Free IBM Stock Report) reported better than expected earnings for the fourth quarter causing that stock to rally in the after hours. That after-market gain should help the Dow get off on a stronger footing this morning. Overall, even with yesterday's setback, the market seems to still be in rather decent shape going forward, and unless there is considerably more to the virus scare than appears likely at this point, we would expect the market to continue to hang in there as the quarter unfolds further.
Finally, looking at the day ahead, we would expect stocks to open the session on a positive note. – Harvey S. Katz, CFA