After The Close - The major U.S. indexes each rose sharply higher on Wednesday, with the NASDAQ setting yet another intraday high. But it was the Dow Jones Industrial Average that surged to today’s biggest gain. The blue chip composite derived most of its strength from its financial components and aerospace behemoth Boeing (BA – Free Boeing Stock Report). The broad-based S&P 500 also fared well today, as did the small-cap Russell 2000. Still, due in large part to notable weakness in the utility sector, advancing shares outnumbered declining issues by a modest 1.7-to-one margin.
The Dow’s better-than-300-point expansion was probably helped by the relative scarcity of new geopolitical developments. The index’s multinational companies are more exposed to undulations of the global economy and political landscape. With the past month-plus of headlines being dominated by either trade or nuclear news items from China, North Korea, and Iran, it has been a volatile several weeks for the Dow. The tariffs placed by the United States on certain goods from Europe, Canada, and Mexico have also contributed to intermittent selling pressure in recent days, as well. But the bulls came out in full force after yesterday’s modest bout of profit taking, with basic materials, financials, and telecommunications sectors registering particular strength.
Elsewhere, the price of domestic crude oil decreased to below $65 per barrel on a higher-than-expected rise in U.S. production. Stockpiles grew more-than 2 million barrels, according to a report by the Energy Information Administration. This came in stark contrast to the expected 1.8-million-barrel decrease. Also hurting the commodity’s price was the growing concern that Saudi Arabia and other international drillers would increase their own activity in response to the United States’ build.
We suspect many investors will look to collect some of their profits in the days ahead, especially if geopolitical speculation takes center stage. Still, the equity markets appear to be continuing the strength exhibited during May and, with more positive economic updates expected on the horizon, the bulls may yet have another push in them. As of the closing bell, the Dow and S&P 500 are about 6% and 4% off their all-time high levels. Stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell - The stock market, fresh off two straight days of sharply higher prices, as Wall Street cheered the release last Friday of a strong jobs report, seemed ready to go for a third win in a row yesterday morning, as the futures were posting some nice pre-market advances. However, while the NASDAQ did jump out to a formidable early gain and the S&P 500 Index and the smaller-cap indexes held their own, the Dow Jones Industrial Average, one of the poorer performers this year, fell back modestly in the early going, losing more than 50 points as the first 90 minutes concluded.
As to the market, the early NASDAQ strength reflected a further focus on the fundamentals, namely strong earnings prospects and an improving economy. The Dow, which is more focused on the global picture, as many of its companies are involved overseas to a degree, was under some early pressure. As to the global outlook, it is increasingly troubled as trade differences and the possibility of an outright trade war loom following our country's move to a more tariff-oriented trade stance. The good news, though, is that the NASDAQ jumped ahead to an all-time high in early dealings, while the Dow remained well off of record highs.
Regarding the economy, the early trading hours yesterday saw the release of yet one more encouraging metric, as the Institute for Supply Management posted its second strong economic release in the past three days. Specifically, following Friday's strong result in manufacturing, the ISM chimed in with a better-than-forecast increase in non-manufacturing. Specifically, that survey registered a result of 58.6 in May, which topped the April tally of 56.8 and was above the 50.0 divide between an expanding and a contracting services sector. Nice gains within this overall index were tallied by deliveries, backlogs, and prices.
But this strength could not overcome some modest profit taking in the late-morning market, as the Dow's deficit rose to near 100 points, while the S&P 500, a breakeven performer earlier in the day, eased into the red. Finally, the NASDAQ, once up nearly 40 points, gave back nearly all of its gains. However, when the losses didn't mushroom, the stock market started to come back as the afternoon began, with the Dow's loss, once approaching 100 points, eased off noticeably. The comeback then continued as we moved further into the afternoon, with the small caps leading the way higher in a modestly improving market, save for the Dow.
It would seem from this mostly positive investment backdrop that the global headwinds, namely the vexing trade and tariff issues, are taking at least a momentary backseat to the economic fundamentals. And that is good news for investors. This lesser focus on trade is perhaps a function of the fluid nature of the situation. In fact, we could have several changes in direction before the matter is hammered down on a longer-range basis. Nevertheless, this potential for more upheavals aside, the market continued to firm up in the afternoon, with the Dow going modestly positive as the final hour of trading approached.
The last hour would see some minor retracement for a time, with the Dow again going slightly negative. At the close of the session, that 30-stock composite was off a mere 14 points, while the NASDAQ, securing yet one more all-time high, rose 31 points. Among the individual gainers was Weight Watchers (WTW) stock, which continues to soar on the basis of its increasingly popular weight control program and brightening prospects. Conversely, Starbucks (SBUX) was among the day's weak performers. Overall, it was a slightly positive session for the market, as it barely eked out a third straight win.
Now, a new day begins, and we look out overseas to see how stocks in Asia fared overnight, and find that the major composites were higher in the session. Over in Europe, the bourses are moving forward, as well, despite lingering trade tensions, at this hour. Meantime, yields on the 10-year Treasury note, which ended matters at 2.92% yesterday, are now at 2.95%. Also, oil prices are a tad weaker in New York and U.S. equity futures are currently suggesting a higher opening when trading resumes at 9:30 AM (EDT). - Harvey S. Katz, CFA