After The Close - The U.S. stock market put in a mixed performance today. At the close of trading, the Dow Jones Industrial Average was down 13 points; the broader S&P 500 Index was up five points; and the NASDAQ was higher by 21 points. Market breadth was favorable, as advancers outpaced decliners on the NYSE. From a sector perspective, the utilities, energy, and basic materials issues displayed leadership, while the healthcare and financial stocks lost ground.
There were no major economic news items reported today, and tomorrow will be a light day, as well. However, on Wednesday, we will get a look at the export and import prices for the month of December. In addition, wholesale inventories for the month of November will be released. Meanwhile, for traders watching the commodity markets, the EIA will post its latest weekly crude oil inventory numbers.
Elsewhere, few corporations delivered quarterly profit reports today. However, shares of Kohl’s (KSS) moved up in response to better-than-anticipated sales numbers. In contrast, shares of GoPro (GPRO) sank after the action camera company tempered its outlook. The corporate news should pick up shortly, as the fourth-quarter earnings season commences. In fact, some major banks are slated to weigh in with their numbers in just a few days.
Technically, the stock market seems to be holding up reasonably well, as we embark on a new year. However, it is likely a bit early to tell how the year, as a whole, will shape up. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Fresh off of an historic run in 2017, which saw the Dow Jones Industrial Average finish higher in each month of the year for the first time and the other major equities set and break records at a breakneck pace, the bulls were at it again during the first trading week of 2018. In fact, it was the best start to the year for the Dow 30 and the tech-heavy NASDAQ since 2006 and the fastest beginning for the broader S&P 500 Index since 2010. For the abbreviated four-day stretch of trading, the Dow 30, the NASDAQ, and the S&P 500 booked respective advances of 2.3%, 3.4%, and 2.6%, with each index finishing at a record level. The headline event was the Dow crossing the 25,000 level early in the week.
Many of the same catalysts that were in place in 2017 have spilled over into the New Year, most notably the euphoria on Wall Street over the biggest corporate tax cut in decades. Wall Street is thrilled with the reduction in the U.S. corporate tax rate from 35% to 21%, with the feeling being that the low taxes and the numerous rollbacks in regulations last year will make American corporations more competitive in the world marketplaces. The tax cuts, along with a strengthening economy (more below), what looks like will be a more-dovish-than-expected Federal Reserve this year, and recent solid quarterly earnings—which are likely to get a further boost from the aforementioned tax cuts in 2018—are emboldening investors and has them pouring more money into equities, despite valuations looking further stretched.
As noted, above, the data from the business beat continue to show signs of a healthy U.S. economy. Last week, the headline report was the latest data from the Labor Department. That made for a somewhat mixed reading, as job creation—nonfarm payrolls increased by 148,000 positions—was a bit on the light side, but the unemployment rate held steady at a very low 4.1% and there were minimal signs of inflationary pressure on wages. A continuation of latter trend may ultimately keep the central bank on a measured course with regard to tightening the monetary reins this year. This may have played a role in Friday’s outsized gains for the major averages. Also last week, the investment community received very encouraging reports from the Institute for Supply Management on manufacturing and nonmanufacturing activity. The strength of the manufacturing sector augurs well for industrial production this year.
Looking at Friday’s market performance, there was much to like for those long equities. The Dow 30, NASDAQ, and S&P 500 Index climbed 221, 59, and 19 points, respectively. The buying was broadbased, with strong performances from the mid- and small-cap sectors, as well. Likewise, winning stocks led losers by a ratio of nearly two to one on both the Big Board and the NASDAQ, and nearly all of the 10 major equity groups finished comfortably in positive territory. The only decliner among the group was the energy sector. The leadership came from the red-hot technology sector and, to a lesser extent, the healthcare, industrial, and consumer discretionary areas.
Meantime, the week at hand will be relatively light on data from the economic and earnings fronts, at least early in the five-day stretch for the former. Towards the end of the week will get some important reports from the business beat, including the much-anticipated report on retail sales, which will include the results of the all-important holiday shopping season. We will also get data on producer and consumer prices, which also are expected to be highly scrutinized by the Federal Reserve for signs of inflation. Speaking of the central bank, a number of Fed District Presidents are expected to speak this week about monetary policy. This, along with the news from Washington D.C., is likely to have the biggest impact on trading this week.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are indicating some modest profit taking for the U.S. stock market following last week’s record-setting performance. Overseas, the bulls are at it again, with the world stock markets hovering around all-time highs. It is the best start eight years. The combination of strong global growth, notwithstanding today’s surprise decline in industrial orders in Germany, and low inflation are fueling continued appetite for risk around the globe. Stay tuned. - William G. Ferguson