After The Close - The market started trading lower today, as uncertainty rose concerning the ability of the United States to come to a long-term trade agreement with China. The Dow Jones Industrial Average trended downward steadily, and the other indices followed that move. Later in the morning, the White House stated that the 90-day delay in additional tariffs started on December 1st, correcting the notion that these would begin on January 1st, 2019. Too, President Trump stated that he was “a tariff man”, and that further escalation was likely if the countries could not come to a long-term deal.
The Dow accelerated its decline once it broke past yesterday’s lows. The markets rebounded a bit for a time late in the day, but wound up closing at its lows, as investors exited positions near the close. All told, the Dow ended lower by around 800 points, while the S&P 500 was down 90 points.
The market breadth was decidedly negative, as decliners outnumbered advancers on a 4.4-to-1.0 ratio. Financial stocks were among the weakest performers, as interest rates fell sharply during the session.
Meantime, safe-haven and interest-rate sensitive utilities stocks were among the strongest performers on the day, though only on a relative basis.
Additionally, worries about a weaker economy came to the fore, as yields inverted. Indeed, the two-year U.S. note’s return was higher than the five-year note, causing the inversion. Meantime, the two- and ten-year notes’ yields traded closer together (within 11.2 basis points). Inversions of these two yields have been a key indicator of future recessions.
Looking ahead, the stock market will be closed tomorrow for the funeral of former President George H.W. Bush. This marks the first suspension of normal trading since Hurricane Sandy hit New York City in 2012. Still, the futures market will remain open. Meantime, the economic slate is rather full, as the ISM November non-manufacturing index and the estimates for third-quarter unit labor costs were scheduled to be released. Several retailers, including Five Below (FIVE) and Lululemon (LULU), are slated to report their latest quarterly reports, which will provide further insight into the Christmas sales season. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:30 PM EDT - After an electrifying early stock market rally yesterday that at one brief point had sent the Dow Jones Industrial Average to a morning-best gain of more than 440 points, the sellers massed early today in a 180 degree about face. Optimism about a trade deal with China was behind the early buying.
Specifically, after quickly falling back by some 200 Dow points, the selling paused with the market staying in that modestly lower band until the noon hour arrived on the East Coast. Then, the unloading of stocks quickened all at once. Doubts about the ability of the United States and China to broker a permanent trade accord and concerns about a slowing economy at home were the two big factors in the latest market rethinking. An inverted yield curve only exacerbated the fears.
In all, as we move into the early afternoon, we find that the Dow is off by 455 points; the S&P 500 Index is lower by 52 points; and the NASDAQ is plunging by 162 points. The small- and mid-cap indexes are suffering even more on a proportionate basis. – Harvey S. Katz, CFA
At the time of this article's writing the author did not have positions in any of the companies mentioned.
Before The Bell - News that the United States and China had put their trade war on pause for 90 days, in the process reaching an accord to hold off on slapping additional tariffs on each other’s products for three months, sent the stock market soaring at the start of the new trading day and month yesterday morning. This deal, though, is just an agreement by the two nations for a non-escalation in the tariff levels; it does not eliminate them. Still, even this three-month pause was enough for Wall Street to celebrate, sending stocks sharply higher to begin the latest session.
In all, the Dow Jones Industrial Average opened higher by more than 440 points, while the NASDAQ soared to a gain north of 125 points in the early going. There were no bears to be found initially. However, that early buying burst would prove to be the high point of the session, with the major averages, most notably the Dow, easing off that peak. In all, as we hit the noon hour in New York, that blue chip index's 440-point gain had shrunk to fewer than 200 points.
From there, we would see some up and down choppy action, with the market staying in the positive column for the balance of the afternoon. As noted, the early surge was underpinned by the seemingly productive talks between our President and his counterpart in China. The subsequent caution likely reflected some concerns that the aforementioned talks produced more of a pause than an agreement. There is this 90-day window, which may or may not produce an accord of some duration. So, after the initial flurry, the market settled in more modestly.
In truth, this was just a truce, and plenty of hard work still needs to be done before a final accord can be brokered. This was just the opening act, with plenty of heavy lifting still ahead. So, there were some second thoughts on the rally as we reached the middle of the trading day. That said, there were plenty of individual and group winners, with the car companies, the steelmakers, the semiconductor manufacturers all gaining nicely on the day to that point. In all, as we moved inside the final 90 minutes of trading, the Dow was still up 250 points.
So, obviously, to that point, there remained many believers in an eventual long-term accord between the two economic super powers. That confidence would continue in place for the duration of the session, with some back-and-forth movement, to be sure. As the Monday session wound down, there would be some additional instances of buying, with one such bringing the Dow's gain to just above 300 points. In fact, as the closing bell sounded, the Dow still was ahead by 288 points.
In all, the day concluded with, in addition to the Dow's hefty advance, a gain of 30 points in the S&P 500 Index, and an advance of 111 points in the tech-heavy NASDAQ. The Russell 2000 also did its part advancing by 16 points. Breaking things down, we see that nine of the top 10 equity sectors sported increases led by energy, basic materials, and technology. Only the telecom group faltered. Also, gaining stocks held a formidable lead of almost three-to-one on declining stocks on the Big Board.
Looking out at a new day, now, as Wall Street tries to fashion an encore, we see that stocks in Asia were trading in a mixed pattern in the overnight hours, while in Europe, the major bourses now are trending lower on doubts about the trade truce between China and the United States. Also, oil prices are higher and Treasury note yields are lower, having fallen below 3.00%. Finally, as we look ahead to the opening bell, we see that the U.S. equity futures are poised to begin the new trading day with losses on doubts about the trade truce. - Harvey S. Katz, CFA