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After The Close - The stock market started out positively, continuing yesterday’s rebound. The Dow Jones Industrial Average climbed by 186 points in the early session, while the other indices were up in tandem. However, sentiment quickly turned to the downside, as two Federal Reserve board members made hawkish statements, including Philadelphia Fed Chair Patrick Harker who indicated that he doesn’t see the need for another interest-rate cut, and that the rate should stay where it is for a while. Meantime, recession fears also increased, owing to news that the manufacturing sector has contracted for the first time in a decade according to one survey. The markets then momentarily traded in the red, before moving back toward the upside. Still, they did not eclipse the daily highs and the NASDAQ was unable to return to the green. Overall, the Dow closed higher by 50 points, while the S&P 500 was barely below breakeven at the close, and the NASDAQ fell 29 points.

Overall, the market was rather directionless, as trading favored neither the advancers nor the decliners. The financial stocks were among the best performers on the day, as the interest-rate curve steepened a bit. On the other hand, materials equities were among the weakest, notably Dow-30 component Dow Inc. (DOW Free Dow Stock Report).

In commodity news, oil prices were volatile but ended the day slightly lower as global growth fears caused energy prices to decline. Meantime, U.S. Treasury bond yields were higher, as traders think that interest rate cuts will not be as likely at the coming Fed meetings. Too, long-term yields were greater than in the short term, causing a steepening of the yield curve. Meantime, the VIX Volatility Index was higher as demand for options protection increased.

Looking ahead to tomorrow, all eyes will be will be on Jackson Hole, WY, as U.S. Federal Reserve Chairman Powell will be giving a speech at the bank’s symposium. Traders will likely be paying careful attention to any clues about the future interest-rate policy. Meantime, new home sales for July will be released, while a small number of quarterly earnings reports are on the docket. Too, we think that any developments in U.S. trade negotiations with China could affect trading tomorrow.  - John E. Seibert III

At the time of this article’s writing, the author held positions in Dow Inc. (DOW).

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Before The Bell - The stock market's recent pattern of up one day and down the next continued over the first two trading days this week as stocks did well on Monday, but floundered on Tuesday. And the bulls were at it again yesterday, as strong profit performances from a pair of giant retail chains helped stocks get off the ground quickly. In all, the Dow Jones Industrial Averages, which sold off at the close of trading yesterday, eventually descending by 173 points in total, reversed course quickly and decisively in trading yesterday, rising by just over 300 points in the morning.

As to those retail chains, shares of both home improvement giant Lowes Cos. (LOW) and department store behemoth Target (TGT) soared in early trading, rising by 10% and 20%, respectively, on those stellar results. That impressive showing helped to lift the market in total as we indicated. The good retail showing, which followed a solid report on retail spending, in general, issued last week. The excellent outcome at Lowes and Target clearly helped lift investor sentiment. This strong retail showing also came at a time when many are worried about a possible recession down the road.

It could well be that the consumer is doing well enough to keep the economy going. And that belief is helping the stock market, at least over the past week, as the Street has come storming back after an earlier 800-point Dow slide. Yesterday morning's strength also was attributable to optimism ahead of the release of the Federal Reserve's minutes from the last FOMC meeting. The minutes were issued at 2:00 PM (EDT). In those FOMC minutes, the Fed said that the reduction in interest rates approved late last month was a mid-course correction and that futures cuts were not on a pre-set course.

The stock market reacted little to the release of the minutes, maintaining a gain of about 250-300 points in the Dow, for the most part, and a 70-80-point advance in the NASDAQ. Interestingly, and perhaps ominously, the yield on the 10-year Treasury note eased further, falling to 1.55% for a time before rebounding slightly. But for yesterday, at least, stocks were ignoring the potential recessionary sign and moving higher. Also moving higher were sales of existing homes in July, with that metric climbing 2.5% to a seasonally adjusted 5.42 million annual units. Expectations had been for a slightly smaller increase, to 5.39 million homes.

The stock market then would weaken slightly for a time, so that as we moved into the final hour, the Dow's gain had eased to just over 200 points. The rest of the session would see little further movement among the major indexes, as Wall Street ended matters with sizable gains across the board. On point, the Dow would add 240 points; the S&P 500 would rise 24 points; and the NASDAQ would jump 72 points. Healthcare stocks generally did well, as did some basic materials issues. All in all, it was a solid performance, as the weak sentiment in place earlier this month appears to have been overcome.

Now a new day dawns and after yesterday's strong showing on our shores, we see that stocks in Asia were mixed in overnight dealings, while the key bourses in Europe are posting modest losses at this hour. In other markets, oil prices are little changed; gold is being quoted at $1,508 an ounce; and yields on the 10-year U.S. Treasury note is at 1.57%. All of this suggests that the U.S. stock market will open the day with nice gains. – Harvey S. Katz, CFA   

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.