After The Close - The stock market started strongly today, as a report out of China stated that the U.S. and China had agreed to remove existing trade tariffs, which traders though increased the likelihood of a deal reaching completion. Additionally, some economic indicators, including initial weekly jobless figures were better than the Street’s expectations. Thus, the Dow Jones Industrial Average rose by as many as 282 points, while the S&P 500 was up by 21 points, and the NASDAQ was higher by 73 points. In fact, the three indices all reached all-time highs. The markets then traded sideways throughout much of the afternoon, but never eclipsed their prior highs. The market then tailed off into the final portion of the trading session. All told, the Dow closed higher by 182 points, the S&P 500 was up eight points, and the NASDAQ closed higher by 24 points.
Moreover, market breadth was neutral, favoring neither the advancers nor decliners by a significant amount. Energy stocks were among the best performers, while utility equities were among the weakest, hurt by a rise in interest rates.
In commodity news, oil prices rose today, as sentiment improved for global trade with the news reports. Too, natural gas inventories grew at a slower-than-expected pace. Meantime, U.S. Treasury bond yields rose today across the board, as a move away from the safe-haven asset occurred. The 10-year yield hit a three-month high of 1.97%, intraday, making a one-day increase in rates that was the biggest since late 2016. The VIX Volatility Index was higher today, though off of a low base, as demand for options protection rose a bit.
Looking ahead, a substantial amount of economic data will be released tomorrow, including the University of Michigan consumer sentiment index for November and wholesale inventories for September. Additionally, a few companies are slated to report quarterly results after the close today and before the bell, which will probably impact trading. Also, we think that tomorrow’s session will likely be affected by any developments in U.S. trade negotiations with China. - 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 stock market, which marked time on Tuesday following big wins the previous two sessions, began yesterday in similarly mixed fashion, with narrow movements up and down. Once more, the market was being underpinned by some modest firming up in the long business expansion and by continuing optimism that a partial trade accord will soon be reached with China. At the same time, upbeat earnings data and selective merger talk was boosting the bullish cause. On the profit front, the day's action was helped by a solid showing from giant drugstore chain CVS Health (CVS).
So, two of the major equity averages, the Dow Jones Industrial Average and the S&P 500 Index, moved ahead slightly as we hit the first hour of the trading day, while the NASDAQ, seeing pressure in the technology area, backed off modestly. As to the economy, after the Institute for Supply Management (ISM) had reported a better-than-expected reading on non-manufacturing activity during October on Tuesday, just two days after the ISM posted another unsettling report on manufacturing, the government posted an unfavorable reading on productivity yesterday.
In short, productivity dropped during the third quarter by the most since the final three months of 2015. That would be a sign that all is not yet well with the economy and that the recent slowing in GDP growth is likely to continue in the coming quarters. In any event, after that mixed opening, the key averages dipped back into the red after the first hour. However, the subsequent drop in the Dow and the S&P 500 Index was slight, while the losses in the NASDAQ were more substantial, albeit hardly dramatic. It was looking to be a day of incremental profit taking at that point.
The profit taking was brief, however, and as we approached the noon hour in New York, the Dow and the S&P 500 were edging toward the profit column, while the NASDAQ still was under some pressure. The selling did pick up again as the noon hour struck, with the three major large-cap indexes all in the red as the afternoon began. The small-cap indexes also were lower, as were bond yields. So, things were less than hopeful as we turned our attention to the second half of this mid-week equity market session. With earnings season winding down, the Street clearly needs a new catalyst for the bulls to forge ahead, we would think. And it could be trade optimism.
The downturn would then continue into the early to mid-afternoon, with the Dow briefly pulling back by roughly 85 points before the buyers stepped back in. They would then make enough of a stand for the blue chips to return to the profit column at 2:00 PM (EDST). The S&P 500 also would turn green once more, though the NASDAQ and the Russell 2000 both would continue to falter. This seesaw pattern would then persist into the close, with the other indexes joining the NASDAQ in the minus column briefly as the session ticked down to the final bell.
However, some nominal last-minute buying would help the Dow and the S&P 500 Index to about breakeven, while the NASDAQ would finish 24 points lower. The Russell 2000 also would give some ground as would Treasury note yields. Looking out to a new day now, and after pedestrian showings the past two sessions, the major markets in Asia were a bit higher overnight; in Europe the early trend is positive on growing optimism on a trade deal with China this morning. Also, oil prices are up; Treasury note yields are rising and the early read on the U.S. equity market is strongly positive as the U.S. and China have agreed to remove all existing tariffs. The tale of the tape today likely will be the latest news from the trade front, where progress is clearly on the rise. - harvey S. Katz, CFA