After The Close - The Dow Jones Industrial Average slipped into negative territory today at the close, after being as much as 381 points higher at one point, in another volatile day of trading. The Dow finished off about 20 points altogether.
The NASDAQ fell back 64 points, much more sharply than the Dow, on a weak performance from the technology sector, and the broader S&P 500 slipped 13 points. Damage from the recent selloff to the market’s internal measures is becoming apparent. More stocks hit fresh 52-week lows than highs for the session, for instance.
The root cause of the market’s recent volatility looks to be fears of a rapid rise in inflation that was sparked when last Friday’s better-than-expected jobs report was accompanied by the fastest annual wage growth in some time. That news sent already-rising interest rates higher still, particularly on the long end of the yield curve. Investors will be keenly watching for further signs of any inflationary trends in the days and weeks ahead.
In the meantime, today’s Treasury note auctions indicated that higher rates were needed to clear the market. The yield on the benchmark 10-year Treasury note rose to 2.84% on the day. There is some thinking that the government will need to borrow much more in the near future, following today’s agreement on a budget deal in the Senate. That could potentially push yields toward 3.00%, a level not seen for several years.
Among individual stocks, shares of social media facilitator Snap, Inc. (SNAP) jumped on better-than-expected fourth-quarter results.
On the down side, Chipotle Mexican Grill (CMG) shares fell notably, apparently on concerns about sales and foot traffic after recent food safety issues.
In other markets, oil prices slid about $1.55 a barrel, to around $61.86, after the Energy Department reported a 1.9 million barrel rise in inventories. While that was less than the expected increase, a jump in gasoline stockpiles hurt sentiment.
In addition, domestic production climbed past 10 million barrels a day, a high point, suggesting shale drillers are pumping flat out. The dip in oil prices weighed on energy sector shares.
Broadly, the volatility seen in the market of late could continue if long-term interest rates gravitate upward, toward historically higher levels. But such a trend will presumably need to be confirmed by upcoming economic data. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - It certainly has been a wild few days on Wall Street. To wit, after the Dow Jones Industrial Average had tumbled by 666 points this past Friday and then plunged by an even more alarming 1,175 points on Monday, that composite, which had been off by more than 1,500 points at its late-afternoon nadir to start the week, and the market, in general, got off to a shaky start yesterday. True, the mid-morning setback, which was between 500 and 600 points on the Dow, was nowhere near as dramatic as the aforementioned decline on Monday, but it was still worrisome enough to further shake sentiment on the Street.
Unlike Friday and Monday, though, yesterday's market did see some attempts to rally during the first half of the session. In all, after the Dow suffered a session-worst decline of 567 points early on, it managed to rally in the late morning, climbing to an early gain north of 350 points. These fireworks came after the markets in Asia and Europe had tumbled in earlier dealings. Of course, it was not just the Dow that fell and rose sharply during the morning, but the other indexes as well, both large and small. The big reason for the sharp decline is that the market's overvaluation had made stocks vulnerable to unfavorable news.
And such news came out in the past week in the form of a sudden escalation in interest rates, with yields on the 10-year Treasury note and the 30-year Treasury bond climbing in lockstep after the Federal Reserve had strongly hinted in recent days that it would probably be assuming a more hawkish monetary stance reflecting the risks of rising inflation. This prospect clearly has rattled the financial markets, both on our shores and overseas. It was the case again yesterday, as sharp swings, albeit relatively less dramatic ones than on Monday, again took place.
This back-and-forth extended into the early-to-mid-afternoon, before a more concerted buying campaign took place as the session wound down. In all, the Dow did surge to a late-afternoon gain of more than 600 points, making for a peak-to-trough range of over a thousand point in that blue-chip composite. This comeback, of course, does not undo the sharp hit to sentiment that was suffered on Friday and Monday. However, it did stop the erosion in confidence, for at least in the short run. Meanwhile, among the big Dow gainers on the day were two high-profile blue chips, The Home Depot (HD - Free Home Depot Stock Report) and Apple (AAPL - Free Apple Stock Report).
As to the outlook going forward, the economy remains on sound footing, with most of the key indicators from manufacturing to employment showing formidable strength. However, those two reports also signaled that inflation was starting to ratchet up, and that is worrisome for equity investors. For now, we sense that the Federal Reserve will vote for three interest rate increases this year, with the next one, and the first in 2018, likely occurring at the March FOMC meeting. Should a fourth rate hike be opted for, and we sense that would occur at the December gathering, the hit to confidence would likely be significant.
At this time, though, we think a better course is to stay the course. Markets do move up and down, and the absence of a correction of any note in recent months made the actual one more severe when it finally hit. To be sure, a 1,175-point tumble in the Dow is frightening, but, in percentage terms, it was a less-alarming 4.6%. Regarding yesterday's strong close, the Dow regained 567, after, as noted, gone just over the 600-point mark, while the NASDAQ jumped 148 points. But the comeback was largely centered on the blue chips. Going forward, we shall see if the rally broadens out.
Looking ahead to a new day now, we see that stocks were mixed in Asia overnight, on the heels of Wall Street's partial comeback, while in Europe, the key bourses are tracking higher, at this hour. Meantime, Treasury yields, off slightly yesterday, closing at 2.77% on the 10-year note, are now at 2.78%. As to our futures, early indications are for a moderately lower opening when trading resumes at 9:30 (EST) this morning. From there, trading likely will be volatile once again. - Harvey S. Katz