After The Close - The stock market started deeply in the red today, as fears increased about the Wuhan Coronavirus, given that cases were found in other locations. Too, they were speculating how the flu-like virus would impact global growth in 2020. The Dow Jones Industrial Average fell well over 200 points in early market action, while the other indices were down in tandem. However, sentiment started to improve throughout the day, as the World Health Organization stated that it was a “bit too early to consider this event is a public health emergency of international concern.” Investors took this news positively, and the markets rose considerably throughout the day, with the S&P 500 and NASDAQ turning green. Overall, the Dow closed lower by 26 points; the S&P 500 rose four points, and the NASDAQ was up 19 points.
Moreover, market breadth finished the day directionless, though it favored the decliners at the start of the day. Industrial stocks were among the best performers on the day, aided by a strong performance from Dow-30 component Boeing (BA – Free Boeing Stock Report). Meanwhile, healthcare stocks were among the weakest.
In commodity news, oil prices were down today, despite a smaller-than-expected crude oil drawdown yesterday. Early fears for global trade caused this move lower. Meantime, the U.S. Treasury bond yields fell and the yield curve flattened a bit. This usually is negative for financial earnings. The VIX Volatility Index was slightly higher today, as demand for options protection rose.
Looking ahead, no major economic news events are scheduled for tomorrow. A few smaller earnings reports are expected before the bell, though. Meantime, a few notable companies will release their quarterly earnings results after the bell today, including Dow-30 component Intel (INTC – Free Intel Stock Report). Overall, we think trading tomorrow will be affected by any developments concerning the Wuhan Coronavirus and the political situation at home. - 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 backtracking notably on Tuesday, as traders returned to the market after the three-day weekend, stocks regrouped yesterday morning as the Dow Jones Industrial Average quickly jumped out to a 124-point early uptick, principally on strength in shares of technology behemoth International Business Machines (IBM – Free IBM Stock Report). That issue, which reported favorable metrics after the bell on Tuesday afternoon, including a rare increase in revenues, rose about five points during the morning. That advance, however, was offset by another slide in the stock of troubled airline maker Boeing (BA – Free Boeing Stock Report).
The latest problem with Boeing is really just a continuation of the old problem, namely its inability to get the troubled 737 Max 8 airliner off the ground. It had been expected that the craft would be back on line after the first quarter. However, on Tuesday, the company indicated that the recovery process might take until June, or later. The impact on Boeing and its suppliers is substantial. There also is an effect on the economy, overall. So, that issue has broken through another 52-week low, and is now off by almost a third in the past 12 months, threatening to fall under $300 a share. It had been $445 earlier.
Meanwhile, after that fast buying burst early in the day, the averages started to give back a little ground, so that nearly all of the Dow's gain was erased by noon time yesterday, although the NASDAQ, on strength in technology, especially in some chipmakers, was hanging in there nicely. As for other effects on trading, spirits were lifted early by a positive report on sales of existing homes issued for December. As for earnings, they have been bettering expectations in general, with some 75% of the S&P 500 companies posting positive bottom-line surprises thus far in the latest (December) quarter.
Also on the march yesterday were shares of electric carmaker Tesla (TSLA) was up some $40 a share, brining that issue up close to $600 a share. Earlier in the past 12 months it had sold for less than $200 a share. Encouragingly for the bulls, investors, who would see the Dow momentarily move slightly into the red in the early afternoon, would soon right itself again, and as we entered the final two hours of the session, the blue chips would again move almost 100 points higher. Not all of the groups were participating, as the basic chemicals and some industrial groups were faltering, including Dow Inc. (DOW - Free Dow Stock Report), which fell about 2% at its lows.
The market's advance would then stay in place to a very small degree as the session wound down, but the healthier increases of the morning and early afternoon would fade. Still, there were pockets of strength being retained, such as the chip stocks, where Dow issue Intel (INTC – Free Intel Stock Report) was in the vanguard of the earlier run-up. But that gain would not be enough to overcome some modest late selling that would push the Dow slightly into the red by the close. The S&P 500 and the NASDAQ each would stay in the green, but barely. On the whole, it was a day of slight improvement in an overbought market.
Finally, we look ahead to the penultimate session of this holiday shortened week in which we will see the issuance of the leading indicators a bit later this morning. Ahead of that fairly important release, the equity futures are noting little change suggesting an uneven start to the upcoming day's action. – Harvey S. Katz, CFA