After The Close - The futures were negative in overnight trading, as fears rose ahead of U.S. Federal Reserve Chair Powell’s testimony to Congress. However, this trend quickly reversed itself once his prepared remarks, which stated that “cross currents are weighing on the economy” and the Federal Reserve will “act as appropriate”, were released. The Dow Jones Industrial Average, S&P 500, and NASDAQ indices all moved quickly to all-time highs following that release. After reaching an overbought condition, the markets trended lower for a spell, giving back a solid portion of the gains, though all three composites stayed in the green. They then moved back up toward new highs and comfortably finished the day positively in the green. All told, the Dow closed higher by 77 points, the S&P 500 was up by 13 points, and the NASDAQ gained 61 points.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 1.9-to-1.0 ratio. Energy stocks were among the best performers on the day, aided by a strong move higher in crude. On the other hand, financial equities were among the weakest, hurt by a decline in interest rates.
In commodity news, oil prices rose quite quickly today, as U.S. crude supply dropped a bit, and fears rose about a tropical storm disrupting operations in the Gulf of Mexico. This will likely be watched over the coming days to see how the storm develops. Too, U.S. Treasury bond yields had a mixed day as near-term interest rates fell, while long-term rates rose a bit. The steepening of the yield curve may help financials earnings over the long haul, as they tend to borrow short and lend long. The VIX Volatility Index was lower today, as demand for options protection fell a bit.
Looking ahead, tomorrow will have a greater amount of economic data released. This will include the core- and noncore-Consumer Price Index for June. Lower inflation rates may increase the odds that the Federal Reserve cuts interest rates in July and again later in the year. Additionally, the Energy Information Administration will release its weekly report on natural gas inventories. Meantime, a few quarterly earnings reports are slated for release tomorrow. - 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 - All eyes are on the Federal Reserve these days and especially on Fed Chair Jerome Powell who will give testimony before Congress today and tomorrow. The Chair likely will be pressed hard for his latest take on central bank monetary policy ahead of next week's release of the bank's Beige Book and the upcoming FOMC meeting on July 30th and July 31st. Until the government issued a very strong report on non-farm payrolls last Friday, the expectation had been almost unanimous that the Fed would lower interest rates at its next meeting, with some speculating that the decrease would be 50 basis points. Now, sentiment had shifted somewhat.
To be sure, nearly all pundits still expect an interest rate cut at that time, and no move on that count would be greeted harshly by the stock and bond markets. However, the guessing now is that any reduction likely will be limited to 25 basis points, with the feeling that more moves are on the way. That is where we stand now, and jitters are building on the Street as witnessed by the weaker performances over the past three sessions. There has been no major selloff, to be sure, but enough weakness to suggest that the Street is now fixated on the upcoming FOMC meeting and remarks preceding that get together.
Regarding the session yesterday, stocks started out on a losing foot, with the Dow Jones Industrial Average, a 116-point loser to start the week on Monday, falling an additional 140 points early in the latest session. As has been the case during most recent selloffs, stocks would rally off of that lower base, and as we passed the 90-mninute trading mark, the blue chips were down by just under 80 points. And, the NASDAQ, weaker in recent days, had moved into the plus column, further attesting to the lack of strong selling pressure. Among individual issues, shares of Dow component 3M Company (MMM – Free 3M Company Stock Report) were off about 3%.
Meanwhile, in other news, China and the United States are due to resume trade talks this week, as the countries agree not to tack on new tariffs on each other's goods pending the outcome of the talks. Our sense continues to be that some detente will be reached as no one wins in a trade war. Then, as the morning waned, the market strengthened somewhat further, and by noon it appeared as if a full comeback would be reached during the afternoon. Market watchers, in fact, seemed to be betting that the Fed Chair would say nothing injurious to sentiment during today's testimony before the House.
The stock market then would meander about through the afternoon, with the Dow's loss fading dramatically near the close, while the NASDAQ edged further up the profit column. All the while, investors remained focused on today's pending testimony by the Fed Chair. In all, the Dow, abetted by the sharp late move would end matters in the loss column by 23 points. The NASDAQ, meantime, also strengthened, with that composite moving up nicely at the close of the trading day, adding 43 points, in all. So, it was a mixed bag, with gainers and losers not all that far apart.
Looking ahead to a new day and to the Powell testimony before the House, we see that stocks in Asia were mixed in overnight dealings, while the key bourses are lower in Europe thus far this morning. Meantime, oil prices are up sharply so far today on a large drop in U.S. stockpiles and yields on the 10-year Treasury notes now are at 2.11%, after also rising yesterday. Finally, the outlook for U.S. equities is upbeat, based on the early higher action in our equity futures. – Harvey S. Katz, CFA