After The Close - The stock market started lower today, as sentiment for a trade deal between the United States and China weakened. The higher levels of uncertainty caused the markets to fall a bit, while in other news, weekly initial jobless claims remained at a five-month high. Too, a few quarterly earnings results out of retailers were weaker than expected. The Dow Jones Industrial Average was lower by as many as 113 points in the early trading session, while the other indices were down in tandem. However, the market reached an oversold condition and then started to trend up throughout much of the day. The Dow and S&P 500 very briefly traded above breakeven levels before heading lower in the final portion of trading. All told, the Dow closed off by 55 points; the NASDAQ lost 21 points; and the S&P 500 was down five points, closing in the red for the third time in a row.
Moreover, market breadth was slightly negative, as decliners outpaced advancers by a 1.6-to-1.0 ratio. Energy stocks were among the strongest performers on the day, aided by a rise in related commodities. Meantime, REITs were among the weaker categories.
In commodity news, oil prices continued to move higher after yesterday’s smaller-than-expected rise in inventories and a news report that OPEC is likely to extend output cuts until mid-2020. Meantime, U.S. Treasury bond yields were higher today, as a move away from the safe-haven asset occurred. Long-term yields were up more than short-term rates, which usually is positive for financials. The VIX Volatility Index was higher, as demand for options protection increased.
Looking ahead, tomorrow will see the release of the final University of Michigan consumer sentiment tally for November. Too, a few earnings reports are expected, both after the bell today and before the open tomorrow. Overall, we think that earnings reports and any change in sentiment regarding the U.S. trade negotiations with China will likely drive trading tomorrow. - 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 - After a pair of back-and-forth sessions to open the new trading week, Wall Street commenced the day yesterday with moderate losses, especially in the Dow Jones Industrial Average, which sank by 112 points in the first hour of trading. Declines in the S&P 500 and the tech-driven NASDAQ were proportionately smaller. Uncertainty about our trade outlook with China was at the head of the list of problems affecting traders as the session unfolded. Helping stocks along the way were decent metrics on the retailing front, one day after The Home Depot (HD – Free Home Depot Stock Report) had led that group notably lower.
Among the leading sectors, the financials were taking it on the chin early in the day, along with large industrial companies, including The 3M Company (MMM – Free 3M Company Stock Report). As to the retailers, the latest session was proving to be mixed following the sector's selloff on Tuesday, with Target (TGT) shares gaining nicely on better-than-expected results and a raised full-year outlook. However, the main story was provided by further unsettling developments on the trade front, with some former Administration officials saying that the trade talks could hit an impasse that might derail the expected first phase of an accord between the United States and China.
Meanwhile, there was little of note in economic news, one day after Wall Street was treated to a strong issuance on housing starts. Later today, the National Association of Realtors will weigh in with its findings on sales of existing homes for October. A modest rise to the 5.50 million annualized area is the consensus forecast. The market, with no further economic news on hand yesterday, tried with some brief success to limit the damage. Indeed, as the noon hour drew near, the Dow's loss was fewer than 100 points, while the small-cap-dominated Russell 2000 was several points higher, as was the S&P Mid-Cap 400.
However, unlike so many days during this strong year for traders, the equity market did not continue to recover as the afternoon got under way. In fact, after a report surfaced that a so-called phase one trade deal between our country and China might not get done this year, stocks tumbled, with the Dow Jones Industrial Average dropping to a session-worst loss of just over 250 points. But that composite and the other indexes soon began to recover, and the market, which had bottomed at around 1:00 PM (EST) came back some. In all, as we entered the final hour of trading, the blue chip's deficit was fewer than 150 points.
As often has been the case when the trade news is worrisome, industrial giant and Dow component Caterpillar (CAT – Free Caterpillar Stock Report) was in the vanguard of the selling, losing more than 1.5% at one time. Overall, the market continued to recover during the day's final hour, with the Dow, as noted, once off more than 250 points, seeing that loss dwindle to 113 points at the close. Clearly, the bulls are not yet convinced that a partial phase one trade accord will not be consummated this year. That is a logical conclusion as statements have been conflicting all along on that front. Losses of 12 and 44 points, respectively, were inked by the S&P 500 and the NASDAQ.
Now a new day begins, and after yesterday's fireworks, we see that the principal indexes were down in Asia in the overnight hours. In Europe, the key bourses are showing early losses. Also, oil prices are a tad lower and Treasury note yields, down to 1.74% on the 10-year vehicle at yesterday's close, are at 1.76% this morning. Finally, after yesterday's Federal Reserve minutes yielded no big surprises, the U.S. equity futures are poised to show little movement at the open this morning. As for yesterday, and for so many sessions this year, the latest news on our trade efforts with China will be the key to the market today. Stay tuned. – Harvey S. Katz, CFA