After The Close - Thursday’s East Coast blizzard couldn’t stop the venerable Dow Jones Industrial Average from topping 25,000 for the first time. For the day, the Dow rose about 152 points; the S&P 500 gained 11 points; and the NASDAQ, while a relative laggard, pushed ahead 12 points. Positive market breadth confirmed the advance and the number of stocks hitting fresh 52-week highs easily surpassed those reaching new lows.
Among the market’s various sectors, industrial stocks were among the best performers. Shares of Dow-30 component General Electric (GE – Free GE Stock Report), which fared poorly in 2017, continued to show some strength early in the new year.
Retailing stocks, such as Macy’s (M) and L Brands (LB), fell, though. Same-store sales at those companies have not perked up sufficiently for investors to be impressed.
But on the whole, it was another positive session for Wall Street, driven by more good news on the economy. Payroll processor Automatic Data Processing (ADP) this morning reported that private employers added 250,000 workers in December.
Tomorrow morning, the Labor Department is expected to report a favorable employment number for December, with the unemployment rate holding steady, before stocks open for trading. But wage growth is only thought to have moved up slowly, in line with its recent trend.
The slow pace of wage growth has helped to keep both inflation and interest rates in check. The Federal Reserve has only been able to gradually raise short-term interest rates. Meantime, the yield on the benchmark 10-year Treasury note of 2.45% remains unimposing, despite signs of improving economic growth in the United States.
The housing sector remains a key beneficiary of the low-rate environment. Government-affiliated mortgage buyer Freddie Mac today indicated that the average yield on the traditional 30-year mortgage fell this week to 3.95%, from 3.99% at the end of 2017. The yield on the 30-year mortgages is also down a quarter of a point versus a year earlier.
In other markets, oil prices climbed $0.33 a barrel in NYMEX trading, to $61.96. The Energy Department reported a decline in crude oil inventories.
Thus far in 2018, the rally in stocks shows few signs of slowing down. Tomorrow morning’s employment data could set the tone for trading to close the week. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - After striking first, with a wire-to-wire win to open the new year on Tuesday, as the NASDAQ and the Dow Jones Industrial Average each rose more than 100 points, Wall Street's bulls attempted to fashion an encore yesterday. And they did so at the open and in the morning, overall, as the Dow, buoyed by strength in International Business Machines (IBM – Free IBM Stock Report), one of last year's most prominent laggards, leapt out to another solid gain. The blue chip composite was joined in the early win column yesterday by the S&P 500 Index and the NASDAQ, with the latter lifted by some of the major chipmakers.
Clearly, there is a lot of money flowing back into the market as the new year gets under way, which is not all that surprising given the persisting strength in the economy and the notable reduction in the headline corporate tax rate from 35% to 21%. Moreover, each of the three major indexes, the Dow, the S&P 500, and the NASDAQ, reached all-time highs in early dealings yesterday. Also gaining nicely were the S&P Mid-Cap 400 and the small-cap dominated Russell 2000. As was the case on Tuesday, the early gains also were reflected in a strong advance-decline ratio on the NYSE.
In economic news, meanwhile, the Institute for Supply Management, a large trade group, reported that manufacturing across the nation firmed up further in December. In all, this key industrial category registered a survey result of 59.7 for last month. That was well ahead of the November tally 58.2, expectations of 57.9, and the breakeven point between an expanding and a contracting industrial sector of 50.0. The latest month was boosted by strength in new orders, production, exports, and pricing. In all, industrial activity has been gaining for 16 consecutive months. December, meantime, saw the highest survey total since September.
As to the market, the gains continued throughout the morning and into the early afternoon, with the Dow, once up by 85 points, holding on to a gain of about half that magnitude as the noon hour arrived. As was the case on Tuesday, the tech-driven NASDAQ was again leading the way with an advance of two-thirds of a percentage point, while the advance-decline ratio was narrowing, with the former then barely ahead as the first half of the trading day concluded. The market then strengthened for a time in the early afternoon, with the Dow's gain getting back past 70 points again.
But as we neared the 2:00 (EST) issuance of the minutes from the last FOMC meeting, stocks weakened anew, but kept well in the black. Meantime, one issue that was not participating in the day's gains was Dow component Intel (INTC – Free Intel Stock Report). Shares of the chipmaker, a big winner down the stretch last year, faltered badly yesterday on news of a design flaw in the company's processor chips. The stock was off some six percent at the time. As to the Fed minutes, the vote to raise interest rates was not unanimous last month, with a seven to two count, with the two dissenters expressing some concerns about a slowing economy.
Also at the FOMC meeting, there was an ongoing discussion of what was the looming tax overhaul, with most members saying that the tax cuts would give a lift to both consumer spending and business investment. Looked at in the aggregate, the Fed minutes were not concerning, as the market again headed somewhat higher after the release. The late-afternoon momentum then built up as the session wound down, with the late run lifting the Dow to a gain just south of 100 points, gaining strongly for the second time in as many days in this new year. The other indexes firmed up further as well ending another strong day as session highs.
Now, we will see if Wall Street can fashion the so-called hat trick today, with three up sessions in a row. As to an early guide, stock were tracking nicely higher in Asia overnight, led by strong gains in Japan, while in Europe, the Continent's principal bourses are thus far moving upwards this morning. In other markets, Treasury yields, down yesterday, are up thus far in early dealings today, while oil, higher again yesterday on worries about declining output out of Iran in the wake of the mass protests there, is trending higher once again this morning. Finally, ahead of tomorrow's reports on job growth and the jobless rate, U.S. equity futures are posting some early gains in pre-market dealings. – Harvey S. Katz, CFA