After The Close - The markets started out higher today, as good earnings results from a few companies helped to boost the indices. The Dow Jones Industrial Average rose by 184 points in early action, while the S&P 500 was higher by as many as 14 points. At this point, that index was trading just below its 200-day moving average. However, an overbought condition was reached, and the markets started to pull back, making a series of lower highs and lower lows for a brief period. However, market participants attempted to make a final attempt to breach the day’s highs, and nearly succeeded at the close of trading. All told, the Dow closed up 171 points, while the S&P 500 was higher by 13 points.
Additionally, market breadth was quite positive, as advancers outpaced decliners by a 1.8-to-1.0 ratio. Too, technology stocks were among the strongest performers on the day, as good price performances in Alphabet (GOOG) and Facebook (FB) occurred. On the other hand, financial equities were among the weakest, as the U.S. Treasury yield curve flattened a bit.
In commodity news, oil prices receded some, as fears about the global economy slowing caused worry of market oversupply. In addition, U.S. Treasury bond yields were lower, as demand for the riskless entities increased.
Meantime, the VIX Volatility Index was only slightly lower, despite decent price movement, suggesting some weakness may be occurring under the surface.
Looking ahead, economic data loom large, as productivity and unit labor costs for the fourth quarter are due out. Too, the Energy Information Administration is slated to post the weekly change in crude oil inventories. On the earnings front, several large companies are expected to report quarterly results. In addition, trading will likely be affected by Dow-component Walt Disney (DIS – Free Walt Disney Stock Report), which is slated to release after the closing bell today. Too, the State of the Union Address is tonight, which may have an impact on the market tomorrow. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell - Wall Street came into the first full week of February with a good head of steam following a very strong January in which all of the major indexes advanced with little interruption. This notable upturn came on the heels of a woeful December in which the principal equity indexes had fallen into correction territory. That would change last month and, in fact, after a halting start to the session yesterday, the market would further its uptrend as the morning wound down and the afternoon began.
Behind the strong early 2019 start for the equity market has been lessening fears about a further sharp monetary tightening program by the Federal Reserve. The lead bank, which met last week and held interest rates unchanged, also maintained that would be patient in raising interest rates in the coming months. That conclusion caused many on Wall Street to believe that the Fed would keep a steady hand on the monetary aggregates for the next few months. We think any reduction in rates is unlikely at this time.
Other key influences on the market in recent weeks include some relief that in spite of the recent government shutdown and the likelihood that GDP growth slowed moderately in last year's fourth quarter (figures for that period have been delayed by the since-ended shutdown) and will ease somewhat further in the current three months, the economic expansion still remains on track. Indeed, although that track is likely to be a little slower, the potential for a recession this year seems small. Investors are comfortable with that prospective outlook.
Finally, there is the quarterly earnings performance. Results have been decent, on average, with gains for the recently ended fourth quarter in the 12% area. Although that is down from the rates during the first three quarters of last year, is a bit better than had been expected going into the reporting season. The good news has given investors some comfort and the strong showing in recent weeks reflects that. And this uptrend would intensify in the afternoon yesterday.
All told, after a gradually improving morning performance, the bulls really took the reins as the final two hours progressed, with the leading averages surging in the last few minutes to close at the session's highs. In all, the Dow added 175 points; the S&P 500 Index rose 18 points; and the NASDAQ surged by 84 points, with the latter gaining on strength in technology. In fact, it was the formidable advance in some high-profile tech issues that contributed mightily to yesterday's strong market performance.
One of those stocks was Alphabet (GOOG), the parent of Google. That issue rose some 2% during the session ahead of the release of its quarterly earnings statement. And that statement was strong, with the company outdistancing forecasts. However, advertising prices fell, and the stock sold off in after-hours trading, losing more than 3% of its value in extended trading. As to the outlook for the day ahead, in a session that will see some more big names release results, the first thing we do is look overseas.
There, we see that stocks in Asia were mostly higher overnight, while in Europe, the early morning read is solidly positive on optimism about quarterly earnings. Finally, our futures are now suggesting a higher opening when trading resumes this morning and ahead of further earnings reports and tonight's State of the Union Address. – Harvey S. Katz, CFA