After The Close - Today, the futures markets were pointing downward, as the European Union lowered its outlook for growth in 2019. Brexit and a slowdown in China have been taking a toll on the EU’s GDP projections. The U.S. market trended lower during the early trading hours. And worrisome news from White House economic advisor Larry Kudlow that the U.S. and China are still far away from striking a trade deal weighed on the equity indexes. In addition, it was reported that President Trump and President Xi of China are not likely to meet before the March 1st trade negotiation deadline. The Dow Jones Industrial Average dropped by close to 400 points at its trough, reaching the 25,000 level. The other indices also traded lower. However, an oversold condition occurred, and the markets finished the day well off their lows. All told, the Dow finished lower by 221 points, the S&P 500 was down by 26 points, and the NASDAQ fell 87 points.
In all, market sentiment was quite negative today, as decliners outpaced advancers by a 2.4-to-1.0 ratio. Utilities and real estate stocks were among the strongest performers today, both on a relative and an absolute basis. Energy equities were among the weakest.
In commodity news, oil prices declined as fears about the global economy caused demand in that commodity to fall. In addition, U.S. Treasury bond yields were lower, as a flight to safe-haven assets occurred. Too, the bond curve flattened, which is a negative for the financial stocks. The VIX Volatility Index was higher, as demand for options protection rose.
Looking ahead, trading tomorrow will likely be affected by earnings data, as several large companies are slated to report both after the closing bell today and before the market opens tomorrow. In addition, we think that news regarding trade negotiations and the potential shutdown of the government also will be on traders’ minds. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market, on a tear the first two trading days of this week, on optimism about earnings, interest rates, and the economy, settled down somewhat yesterday. Indeed, after some considerable anticipation ahead of Tuesday night's State of the Union address, the market began yesterday's midweek session modestly to the downside. In truth, there was little in the address to either bring on the bulls or the bears, as little new ground was broken and things appeared to be going just fine with the economy and other matters. So, stocks drifted aimlessly, on average, for the first few minutes and even through the balance of the morning.
For the most part, however, the big continuing influence on the market this week, and likely for another few sessions after that, will be corporate earnings. As to sectors, there was some profit taking in the technology space with some early losses in some larger high-profile names. As for the address the previous night, the President did mention issues such as infrastructure, drug pricing, and trade, but not to any disturbing extent, as the companies that might have been affected did little of note. As for trade, the Treasury Secretary noted that talks between the United States and China have been productive, but there also was nothing new to report.
On the corporate front, several large companies, such as General Motors (GM) and Walt Disney (DIS – Free Walt Disney Stock Report), reported results over the past 24 hours. Shares of the former edged up in the session on better-than-expected results, while the latter issue, up in the after hours on Tuesday, eased back somewhat yesterday, despite posting solid results. Overall, results have been good, with more than half of the S&P 500 Index companies having released their results thus far. On average, better than two-thirds of those enterprises have topped consensus forecast.
Meanwhile, as the afternoon progressed, the market continued to fluctuate in light trading, as the generally good news on earnings was offset by lingering concerns over trade and the possibility of another government shutdown when the three-week truce expires a week from tomorrow. Little discernible progress has been made to date in Congress and the split between the two parties remains quite wide suggesting that there may be little movement until right before the February 15th deadline, if even then. And that will become an issue as the calendar moves forward into next week.
The market would then drift into the close generally holding small losses, in some half-hearted profit taking. As earnings season winds down, the market likely will need new catalysts to keep the bulls happy and in a buying frame of mood. What that will be is anyone's guess. It could be a trade breakthrough or a bipartisan deal on funding the government. Neither seems imminent though. For now, the strong earnings season should keep the bulls content. But this is a short-term support, as more than half of the companies already have reported, so the clock is ticking.
All told, on this middle session of the week, the Dow would close off by 21 points, while losses of six and 27 points would be tallied by the S&P 500 and the NASDAQ, respectively. The smaller composites also would trend a bit lower. In all, it was a day notable for little more than marking time. Looking ahead now to a new day, the major indexes in Asia were mixed in the overnight hours, while in Europe, the principal bourses are trending downward. Also, Treasury note yields, relatively flat yesterday, are trading lower this morning so far, while the U.S. equity futures are showing early losses ahead of both additional earnings reports and some Fed speeches. – Harvey S. Katz, CFA