After The Close - The stock market opened higher this morning, and managed to build on those gains through much of the afternoon. At the close of trading, the major averages were all considerably higher. Specifically, the Dow Jones Industrial Average was ahead roughly 410 points; the broader S&P 500 Index was up 36 points; and the NASDAQ was higher by 107 points. Market breadth was quite constructive today, with winners well ahead of losers on the NYSE. Further, all of the major equity groups made progress, with sizable gains in the energy and basic materials issues. Meanwhile, the utility shares, while still ahead for the session, lagged the broader market. Traders may be have been feeling less risk averse, and willing to move capital into more dynamic names.
Investors received few economic reports this morning. Tomorrow will be a light day for economic news, as well. However, the pace should pick up on Wednesday. Specifically, the Consumer Price Index for the month of January is set to be released. In addition, we will get a look at the latest monthly retail sales figures, as well as a business inventories report.
Meanwhile, the fourth-quarter corporate earnings season is still in progress. Today shares of Loews Corp. (L) traded higher, after the property & casualty insurance company delivered better-than-anticipated results. In the technology space, shares of First Data Corp. (FDC) also moved up, as that company put out a respectable release.
Technically, equities moved nicely higher today, extending Friday’s advance. While it may be hard to say for sure if the market pullback is now over, there does seem to be some support for stocks at the current level. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The most recent five-day stretch of trading on Wall Street was a wild one—and an historic one to boot. It also was one that those long equities would love to forget quickly, as it included two separate one-day declines of more than 1,000 points for the Dow Jones Industrial Average. Those eye-catching setbacks were matched partially by two rebounds, including a more-than-300-point gain for the index of 30 bellwether companies on Friday. The NASDAQ and the S&P 500 Index also rallied a bit on Friday. Still, the week was a dour one for the bulls, with the Dow Jones Industrials and the broader S&P 500 Index briefly hitting correction territory. For the week, the Dow 30, NASDAQ, S&P 500 Index, and small-cap Russell 2000 were down 5.2%, 5.1%, 5.2%, and 4.5%, respectively. Investors should also note that those declines came on the heels of the previous-week’s sharp selloff on its final trading day
The bearish sentiment in the market began on Friday, February 2nd, the day the government reported encouraging jobs creation figures for the month of January. That report, which showed a spike in wages, which is a sign of inflation, along with the Fed’s more-hawkish-than-expected view on monetary policy earlier that week, and sharply rising bond yields, unnerved investors and have been the primary culprits behind the recent pessimism in the market. Despite strong earnings recently from Corporate America, investors are worried that the era of easy money is over, as borrowing costs remain on the uptick. Historically, stocks don’t fare well during periods of monetary tightening—and that certainly was the case over much of the last fortnight of trading on Wall Street.
The market has very quickly gone from a long stretch of complacency among traders to a very volatile environment on Wall Street, with intra-day swings in the major averages not seen since the financial crisis and the last recession at the end of the prior decade. The S&P 500 Volatility Index (or VIX), which is a measure of fear in the equity market, rose at a breakneck pace last week (up more than 100% last Monday), ending the five-day stretch at just shy of the 30 mark. Given the continued fears about inflationary pressures, we would not be surprised if the market volatility remains high in the near term.
Friday’s market performance was a small victory for bulls, but was not without the aforementioned volatility, as there were once again wide swings in the major equity averages. It was a seesaw affair for market participants, before some late buying pushed stocks higher into the closing bell. The buying also included some more “flight to safety,” with investors gobbling up utilities despite the recent rise in fixed-income yields. Overall, the leadership came from the technology stocks, with some likely bargain hunting in play after the five previous volatile trading days for the sector. There also was notable interest in the basic materials stocks. Conversely, the energy stocks did not fare well, with investors worried about Friday’s report showing a rise in rig counts. That raised some supply concerns, which would not be good for oil prices. The price of crude both stateside and on the Continent fell below the $60-a-barrel level on Friday, not good news for the oil companies that are trying to work their way back from the oil market struggles in late 2014 and 2015.
Looking ahead to the week at hand, the retailing stocks will begin to grab the attention of investors, with earnings starting to roll in for the major retailers. To date, the fourth-quarter reporting season has been a major success for Corporate America because in addition to the strong bottom-line results there has been very encouraging revenue figures. This augurs well for the coming quarters, which will also benefit from the sharp reduction in taxes under the Tax Cuts & Jobs Act. Meantime, we will also get some news from the business beat, with reports due on retail sales, industrial production, consumer and producer prices, and housing starts. Given the investment community’s concerns about inflation, the data on consumer (Wednesday) and wholesale (Thursday) prices should be closely monitored by investors, as those figures may have a big impact on trading this week. Both reports will be issued before the market’s opening bell on those respective days.
With less than an hour to go before the commencement of trading stateside, the equity futures are presaging a nicely higher opening for the U.S. equity market, with some of the late-week bargain hunting flowing the historic declines likely in play. Overseas, Japan’s Nikkei stabilized after a rough early stretch, while the major European bourses are sharply higher as trading moves toward the second half of the session on the Continent. That said, given all the variables in play right now, we would not be overly surprised if we saw some more patches of volatility on Wall Street today. Investors may want to keep a close eye on the industrial and basic materials sector this morning after word surfaced that the House of Representatives and the Trump Administration will unveil a $1.5 trillion infrastructure spending plan later today. Stay tuned. - William G. Ferguson