After The Close - The market started out quite positively today, as the improved sentiment, which led to six straight days of higher stock price action, continued. The Dow Jones Industrial Average was up by as many as 186 points in the first moments of the trading session, while the S&P 500 was higher by around 24 points. However, the markets appeared to be overbought, and sentiment switched to the downside. The composites ratcheted lower until the Dow and S&P were slightly in the red. The markets then traded in a sideways fashion for much of the day, moving between positive and negative territory throughout the afternoon, though not too far from yesterday’s close. All told, the Dow closed down 14 points while the S&P 500 closed lower by one point.
Additionally, market breadth was rather directionless, favoring neither advancers nor decliners by a large amount. Consumer discretionary stocks were among the best performers of the day, while industrial equities were among the weakest.
In commodity news, oil prices closed around breakeven levels, as traders thought production declines would be offset by reduced demand. Meantime, U.S. Treasury bonds traded very unevenly today. Both the shortest term note and longest-term bond yields were lower, but the rates between two years and ten years were higher. We think this may be an unraveling of some of the moves in yields that occurred over the last few weeks. Still, the curve remains inverted. Too, the VIX Volatility Index was higher today as demand for options protection increased.
Looking ahead, a significant amount of economic data will be released tomorrow. This includes the Energy Information Administration’s weekly status report on U.S. crude oil inventories. Additionally, the Consumer Price Index and Treasury Budget for May will be reported. Meantime, a few retailers are slated to post quarterly results. Overall, we think that the market will trade tomorrow based on any new developments in the trade dispute with China. - 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 - The bulls picked up where they left off last week, delivering another wire-to-wire winning session on Wall Street, though the impressive early gains were pared a bit into the closing bell. There were three events that drove investing yesterday, most notably President Trump’s decision late last week not to impose tariffs on Mexico. That event would have unnerved investors, as it would have brought increased fears about disruptions for the U.S. economy. Also aiding stocks was continued sentiment that the Federal Reserve may cut interest rates to support economic growth, possibly as early as this summer. (This morning’s benign reading on producer prices from the Labor Department, showing a modest increase of 0.1% in May, will likely add nothing to change the Fed’s narrative, too.) Moreover, investors were emboldened by a slew of mergers and acquisitions announcements yesterday, including a $120 billion deal between Raytheon (RTN) and United Technologies (UTX – Free United Tech. Stock Report). An uptick in M&A activity is often viewed as a sign of a healthy equity market.
On Monday, the bulls continued the June buying spree that comes on the heels of the second-worst May performance since the 1960s. As noted, the major equity indexes got off to a fast start yesterday, but did give back some of the initial gains. At the closing bell, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were 79, 81, and 13 points higher, respectively. The buying was rather encompassing, with the small- and mid-cap sectors also finishing comfortably in positive territory. Most of the 10 major equity groups, save for the defensive-oriented telecom and utilities sectors, were sporting up arrows, and advancing issues finished ahead of decliners on both the New York Stock Exchange and the NASDAQ. The latter exchange has fueled by a continued rally in the technology sector, which, along with the consumer discretionary issues, provided the leadership yesterday.
Meantime, the broad movement into riskier asset classes again sent fixed-income securities and the aforementioned high-yielding equities lower. In addition, the price of gold, which is a safe-haven holding, fell yesterday. In general, after a very disappointing May for equities, investors are once again showing an appetite for risk, driven, we think, by the dovish talk on interest rates from the Federal Reserve. The Trump Administration’s decision to indefinitely halt plans to implement tariffs against Mexico also has given equities a boost in June. The CBOE Volatility Index (or VIX) fell yesterday and is now sitting well off of its most recent high in late May.
With less than a half hour to go before the commencement of the new trading day stateside, the equity futures are pointing to a continuation of buying when the U.S. stock market opens. Overseas, the bulls also are out in force. Indeed, the main indexes in Asia finished nicely higher overnight, while the major European bourses are in positive territory as trading moves into the second half of the session on the Continent. With the trade tensions with Mexico subsiding, the attention of the investment community will turn back to the U.S./China dispute. The latest report in this fluid situation is President Trump threating to raise tariffs again on China if President Xi Jinping decides not to meet with him at the Group of 20 confab at the end of this month. That said, it will be a few more weeks before investors have to worry about more U.S./China tariff talk, and they are clearly not letting such get in their way of buying equities right now. The U.S. equity market is looking to extend its streak of five-straight winning sessions today. Stay tuned. - William G. Ferguson