After The Close - Stocks were under pressure from the opening bell today, but finished on a firm note, as the snapback rally since 2019 got under way has lost some steam. Deflating news out of Europe is contributing to the loss of enthusiasm. Projections for economic growth in the euro zone have been revised lower lately. In addition, Great Britain’s proposed exit from the European Union has not been resolved in a manner that would clearly avoid disruption.
Another thorny issue is the ongoing trade dispute between the United States and China, where talks have not proved decisive. Prospects for slower growth stateside, in China, and in Europe are weighing on investor sentiment.
The potential for slower business expansion has resulted in lower earnings estimates for the components of the Dow Jones Industrial Average, where a modest collective rise in share net now appears on tap for 2019. A less rapid uptick on the bottom line for Corporate America, in turn, normally provides a narrower platform for stock prices to advance from.
The energy sector was among the poorer performing groups on the day, as the slower times seemingly at hand undermine oil demand. Crude oil prices were little changed on the day, at around $52.65 a barrel for the benchmark domestic blend, but that is a far cry from $70-plus a barrel several months earlier.
On the bright side, Wall Street has cheered the more favorable interest-rate outlook that has developed on signs of a slowdown in segments of the economy. That is as the Federal Reserve has adopted a wait-and-see approach toward adjustments in monetary policy. There has even been speculation that the Fed’s next move will be a reduction in rates, but it is too early to make that call.
In corporate news, toymaker Mattel (MAT) saw its shares jump as the company reported better-than-expected fourth quarter sales and profits. But Hasbro (HAS), also part of the recreation industry, turned in a disappointing quarter. Its shares fell as a result.
At the end of the day, the Dow Jones Industrial Average was well off of its lows for the session, and ended down by only 63 points with a flurry of buying into the close; the NASDAQ was up ten points; and the S&P 500 gained a couple of points. Decliners topped advancing issues by a modest amount on the New York Stock Exchange. For the week, stocks fell for the first time this year, but the major averages remain nicely higher thus far in 2019. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - After an inconclusive session on Wednesday, investors began the penultimate day of the trading week with a definite bias to the downside. In all, the Dow Jones Industrial Average quickly tumbled by just under 200 points and was still off by 170 points as the first half hour ended. Declines of 22 and 65 points, respectively, were logged by the S&P 500 Index and the tech-driven NASDAQ. Mixed earnings news along with some uneasiness about the global economic outlook were two of the main drivers in the early rush to the exits, along with a modicum of profit taking in an overbought stock market.
But the big factor in the early selling was earnings. Thus far, more than half of the S&P 500 companies have reported and of those that have, almost 70% have surpassed earnings expectations. But with the market having been on a joyride so far in the new year, more good results may be needed to justify the elevated valuations. As to global uneasiness, the European Commission slashed its growth outlook for the euro zone this year, as international trade tensions appear destined to unsettle things. Specifically, after a growth rate of 1.9% in 2018, expectations now are for just a 1.3% pace of improvement in 2019. Some pickup is likely in 2020.
Regarding earnings, the picture is quite bright for the companies than have already reported, but less-than-compelling with respect to forward-looking guidance. According to pundits, after a strong fourth quarter, the market appears to be pricing in a rare down period in the opening three months of this year, but some recovery in the second and third quarters. As to individual companies of note the shares of Twitter (TWTR) tumbled almost 10% in the morning, even as the company posted better-than-expected fourth-quarter metrics. However, the company also said that expenses would rise this year sending the stock lower.
Encouragingly, though, after this initial selling squall, the market stared to rebound, with the Dow quickly halving its losses, as the bull market's resilience again went on display. However, this would prove to be a brief respite. In fact, the outlook would darken materially, as indications came out that a proposed meeting between the President and his counterpart in China was not imminent, raising the threat for additional tariffs. Also, stocks fell further after White House economic advisor, Larry Kudlow said that China and the United States were still far away from striking a trade deal.
With these headwinds suddenly appearing, the market tumbled into the late morning and early afternoon. At its mid-session worst, the Dow would fall to a loss of 385 points, keeping that index barely above 25,000. The tech-laden NASDAQ also would plunge, going down by some 140 points for a time. The losses were eye-catching across the board. Things would then stabilize at these lower levels into the first part of the afternoon. The latest pullback was not all that surprising given the trade backdrop. Besides the latest profit news, trade continues to be a major key to the market's short-term performance.
The market would then again bounce off of its lows after traders returned from lunch, with the Dow, for example, paring its earlier loss of 385 points down below 300 points. The day would then continue well into the loss column, held back from making a more dramatic comeback by the trade issue fears. Even so, the market did stage at least a partial snapback, with the Dow concluding matters with a loss of 221 points. The NASDAQ, once off some 140 points, ended with a loss of 87 points. Moreover, losing stocks held a formidable lead, while oil prices and Treasury note yields both fell.
Now, after yesterday's selloff, we see that stocks were mixed in Asia overnight, while in Europe, the leading bourses are moving little at this hour as global trade and growth concerns linger. Also, oil prices are down slightly and Treasury note yields, off notably yesterday, are now edging downward, as well. Finally, our equity futures are now suggesting a weaker opening when live trading resumes on the persistence of trade worries. - Harvey S. Katz, CFA