After The Close - Equities opened dramatically higher this morning, pulled back considerably as the session progressed, but managed to firm up in the final hour of trading. Initially, investors seemed pleased with the news that the United States will refrain from placing additional tariffs on goods from China. Of note, the G20 summit took place over the weekend, and while a concrete deal was not finalized, negotiations are getting back on track. By the end of the session, the Dow Jones Industrial Average was ahead about 117 points; the S&P 500 Index was up 23 points; and the NASDAQ was higher by 85 points. Market breadth showed a constructive session, as advancers were comfortably ahead of decliners on the NYSE. The technology stocks clearly led the major averages higher, while the high-yielding utility issues underperformed.
Meanwhile, traders received a few economic news items this morning. Specifically, the ISM Manufacturing Index settled at 51.7 for the month of June, which met the consensus view. Elsewhere, construction spending slipped 0.8% in May, which was a soft reading. Tomorrow will not be too busy. However, the latest monthly auto and truck sales figures are due out. Looking ahead, on Friday, the government will release the June employment report, and that will be a widely watched issuance.
In the corporate sector, it was a light day for quarterly profit reports. However, the second quarter has just concluded, and numerous corporations will start to weigh in with results in the weeks ahead. While the numbers for the past few months will be of importance, traders will be looking closely at the guidance provided for the remainder of 2019.
Technically, the stock market made considerable progress during the month of June. It is likely too early to tell how the month of July will evolve. Much will likely depend on the second-quarter earnings season. – 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 - The major equity indexes never strayed too far from the neutral line last week before finishing the five-day stretch nominally lower. Investors, with not much in the way of earnings news—save for the latest results from Dow-30 component NIKE, Inc. (NKE – Free NIKE Stock Report) and that had little effect on the retailing stock—did not make any major moves ahead of the G20 Summit, which commenced late last week in Japan. The hesitation was ahead of President Trump’s meeting with China’s President Xi Jinping, which investors were hoping would lead to some constructive talks on trade. On those hopes, the Dow Jones Industrial Average, the NASDAQ Composite, the broader S&P 500 Index rallied 73, 38, and 17 points, respectively, on Friday.
The buying is expected to continue today when the new abbreviated trading commences; the U.S. equity market is closed on Thursday in observance of Independence Day. The talks between the United States and China on trade were viewed as constructive. The bickering parties seemed to make some process on trade talks, with President Trump deciding against imposing an additional $300 billion of tariffs on Chinese goods and lightening up on the prohibitive restrictions placed on U.S. companies doing business with China-based technology giant Huawei. These moves were seen as a sign that the countries may be making some headway on ending the trade war between the world’s two-largest economies that began on March 1, 2018. Investors should keep close tabs on the technology sector this morning, which should get a big boost from the Huawei news. Likewise, the oil stocks should be on the move after oil futures surged over the weekend. The main catalyst were reports that Russia reached a deal with Saudi Arabia to extend the OPEC+ agreement at current production levels for the rest of 2019 and potentially into early part of next year.
This weekend’s events on the trade front may be what investors—who reacted well this year to news that the Federal Reserve will likely take a more dovish stance on monetary policy—need to keep buying equities. The trade truce between the U.S. and China may serve as a buffer to negative sentiment with regard to the health of the global economy; even the U.S. data have been mixed of late. Speaking of the business beat, we will get a number of important reports, including data on manufacturing and nonmanufacturing activity and the latest employment and unemployment figures. The June payroll figures are likely to be highly scrutinized by the Federal Reserve ahead of this month’s FOMC meeting. There is a chance that with inflation in check, the central bank could loosen the monetary reins, but the next few weeks of trade talks may have more of an impact on the Fed’s decisions than the Labor Department data. The current consensus among economists is that U.S. nonfarm payrolls rose by 160,000 in June, rebounding from a reading of 75,000 in May, and the unemployment rate held steady at 3.6%.
With less than an hour to go before the start of the new trading week stateside, the equity futures are indicating notable buying when the U.S. stock market opens. The aforementioned trade news also is having a positive impact on the international indexes. The main indexes in Asia were higher overnight (note that Hong Kong’s Hang Seng market was closed) and the major European bourses are up nicely as trading moves to the second half of the session on the Continent. Our sense is that if the U.S. economic news doesn’t disappoint, particularly that from the Labor Department on Friday, we would not be surprised some buying ensues heading into the second-quarter earnings season, which kicks off in about a fortnight with the latest results from a number of the biggest domestic banking giants, including JPMorgan Chase (JPM – Free JPMorgan Stock Report) on July 16th. Stay tuned. - William G. Ferguson