After The Close - The stock market started positively today, as a further easing of global trade tensions emboldened traders. This improvement in sentiment caused stocks to move higher, and the Dow Jones Industrial Average rose by as many as 243 points in the early portion of the trading session, while the other indices rose in tandem. The three major composites set all-time highs in the process. However, the markets became overbought and quickly reversed course, giving up a substantial portion of the day’s gains in short order. But the market soon trended higher again, though it never eclipsed its previous apex. All told, the Dow closed higher by 212 points; the S&P 500 rose 22 points; and the NASDAQ increased 74 points.
Moreover, market breadth was somewhat positive, as advancers outpaced decliners by a 1.3-to-1.0 ratio at one point. Technology stocks were among the strongest performers on the day, aided by a notable move higher in Dow-component Apple (AAPL – Free Apple Stock Report), which was helped by a noteworthy rebound in sales in China. On the other hand, REITs were among the weakest performers, though only on a relative basis.
In commodity news, oil prices ended the day flat after spending much of the session in the red, due to a decrease in tensions between the United States and Iran. Meantime, U.S. Treasury bond yields were lower across the board today, as a move into the safe-haven asset occurred. The VIX Volatility Index fell as demand for options protection waned a bit.
Looking ahead, a good amount of economic data will be released tomorrow. The issuances will be headlined by the unemployment and nonfarm payroll reports for December, which ought to show how well the labor force is doing. Additionally, wholesale inventories for November are on the docket. On the other hand, the earnings slate is quite empty ahead of the start of earnings season next week. Overall, we think trading tomorrow will be affected by any changes in sentiment regarding political tensions with Iran and the trade situation with China. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell - After a seesaw first two trading days of this week, in which the stock market overcame a slow start to rally into the close on Monday and then sold off anew on Tuesday, investors were rattled strongly after the close of trading that day. On point, the equity futures would tumble on Tuesday evening after news broke that Iran had attacked two U.S. military bases in Iraq. In fact, at one point, the futures on the Dow Jones Industrial Average were off by more than 400 points. But that setback proved fleeting and by morning, the futures had turned positive and stocks would open the day to the upside.
The early gains then would be sustained as the morning progressed, with the three large-cap indexes maintaining modest gains throughout the morning. It would seem that the aforementioned attacks were not as major as suspected initially. Sentiment also was underpinned by a solid report on private sector payrolls from Automatic Data Processing (ADP). That is because such payrolls soared by 202,000, or well above the 150,000 estimated for December. That report is a prelude to the much more critical issuance scheduled for Friday morning from the Labor Department on non-farm payrolls for last month.
Encouragingly, the attacks on our airbases seemingly did not result in casualties. Also, the attacks did not target oil infrastructure. That allowed oil prices to ease back after they had rallied the night before. Specifically, world crude futures had jumped by 4% on Tuesday night, only to give back about half of that amount yesterday morning. Meanwhile, the market strengthened into the lunch hour, so that after giving back much of the gain earlier in the morning, stocks pushed strongly to their best levels of the first half of the session, with the Dow advancing past the 220-point mark on reassuring comments from the President.
As for some individual issues, shares of Walgreens Boots Alliance (WBA – Free Walgreens Boots Alliance Stock Report) tumbled after the drugstore chain and Dow component issued worse-than-expected fiscal first-quarter earnings and revenues. Walgreens had been the poorest performer on the Dow in 2019 and it is starting the new year in similar fashion. Also falling on the blue chips were shares of the Boeing Co. (BA – Free Boeing Stock Report) after a tragic airliner crash yesterday. But these were the exceptions to the rule, as stocks sprinted ahead as the morning concluded and the afternoon began on Wall Street.
The rally then would strengthen as the afternoon wound down and investors gained confidence from the reassuring words spoken earlier in the day by the President in which he suggested that Iran had stood down rather than seriously challenge our country. So, this was a relief rally, and as we approached the close, the Dow's advance had passed the 275-point mark as that index neared a record high. A record high, in fact, was secured by the more broadly configured S&P 500 Index and the NASDAQ. This upturn then would carry toward the close, and even with some late selling, the gains would be substantial.
At the close, the Dow would be up by 162 points; the S&P 500 would advance by 16 points; and the tech-heavy NASDAQ would jump by 61 points. Increases also would be tabulated by the smaller-cap indexes, although here, too, some of the late froth would give way. Among the Dow's big winners at the close was Apple (AAPL – Free Apple Stock Report) which rose by better than $4.00 a share, closing at just over $303 a share, after setting yet one more all-time high. Also jumping ahead was another continuing winner, as shares of electric car maker Tesla (TSLA) rose to an all-time high at just under $500 a share.
Looking out at a new day now and after yesterday's bullish fireworks, we seem set to head nicely higher once trading resumes on our shores this morning. – Harvey S. Katz, CFA