Before The Bell - After the equity futures had moved modestly lower for most of the pre-market hours, equities started out to the upside yesterday morning, on further strength in the tech stocks. That uptick followed a strong rebound on Wednesday, in which the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ had all fashioned wire-to-wire wins after three straight days of losses. The stock market's latest move higher came in spite of the release of dour economic metrics, including data showing a slightly larger increase in the August Producer Price Index and a higher-than-expected tally of weekly jobless filings.
On this latter count, the Labor Department reported that such claims came in at 884,000 for the past seven-day stretch. A total of 850,000 filings had been expected. Meanwhile, continuing claims, which includes those receiving unemployment benefits for at least two weeks in a row, rose by 93,000 to 13.4 million. Overall, though, the economic news has been largely supportive, especially in the areas of manufacturing and non-manufacturing. And, in fact, we continue to look for GDP growth in the current quarter to approximate, or even exceed, 20%.
As for the market, the gains would erode after the first hour of trading, and the Dow and the other indexes would fall into the red as we approached the noon hour on the East Coast. Stocks then would go back and forth between the plus and minus columns for the next hour, or so, with the major tech names in the lead both up and down on this volatile day. This shakiness comes after a sharp, but brief, pullback late last week and on Tuesday of the current holiday shortened week, on worries about rich valuations in the technology space.
Then, after this mid-session choppiness, the indexes started to head lower with some seriousness, after word came out that the Senate had failed to pass a Republican-pushed coronavirus stimulus plan. So, as we moved inside the final two hours of trading, the Dow and the other indexes were trading at session lows. The falloff then would accelerate during the final 90 minutes, leaving the Dow with a closing loss of 406 points and the NASDAQ with a deficit of 222 points. Essentially, the major averages gave back yesterday what they had gained on Wednesday.
Regarding yesterday's action, in addition to the tech rally losing steam, oil prices, weak for some time, fell further on inventory concerns, and that is rarely good for stocks. Finally, there are some concerns about inflation. Not only did the Producer Price Index rise a bit more than forecast, but the medical care categories increased significantly. Meantime, among individual stocks, Apple (AAPL) and Microsoft (MSFT) led the marker lower yesterday. Also pushing down were the shares of industrial behemoth and Dow component Caterpillar (CAT).
Now, this volatile week will be coming to a close, and as we look ahead to a new day, we see that the major indexes seems to be headed for a higher opening at 9:30 AM (EDT). Finally, even with an early rebound, the day ahead is likely to have buying and selling spurts, with volatility figuring to remain elevated. – Harvey S. Katz, CFA