After The Close - Early on Friday afternoon, the major U.S. indexes shook off some morning selling pressures and advanced modestly into positive territory. Indeed, even though the geopolitical and policy-related headwinds remained, the averages retained, even built on, their afternoon gains as the closing bell neared. Concerns over the G-7 summit in Quebec, as well as next week’s FOMC meeting, were likely the main influences on today’s session, though we believe the notable stock-price surges from earlier in the week opened the door for profit takers to make their presence felt ahead of the weekend break.
It’s that latest mentioned factor that likely limited a more buoyant day of trading today, with the news items serving as a catalyst for investors to cash in on what was a strong week for domestic equities. Still, while the recent earnings season and underlying economic data signal a healthy domestic backdrop, updates on the foreign-policy front ought to continue functioning as a sort-of check on bullish sentiment. President Trump’s recently announced desire for Russia to be reinstated into the G7 is among the most recent developments that have served to inject a modicum of uncertainty into the equity markets, while tensions are also mounting with both rival and allied nations as it pertains to tariffs. Thus, we suspect trade will be the most closely watched topic of the summit.
Meanwhile, the per-barrel price of domestic crude oil slipped slightly. Indications that demand in China will be lower than anticipated over 2018, coupled with a reduction in the price target by a major investment bank, were the primary causes for the decline. Earlier in the week, a surprising increase in U.S. stockpiles stoked worries that Russia, Saudi Arabia, and other international drillers could augment their own production targets to combat the glut of American oil in the market. This downward trend led to the energy sector exhibiting the biggest aggregate loss today.
Overall, each of the Dow, S&P 500, and NASDAQ finished the week higher, although the latter was below the all-time high set on Wednesday afternoon. The small-cap Russell 2000 ended reasonably higher, too. Accordingly, market breadth favored the advancing shares by a 1.4-to-one ratio. Today’s best-performing stocks were found mostly in the noncyclical consumer goods and, to a lesser extent, healthcare sectors.
Looking ahead, monetary policy will play an outsized factor in trading next week. Most investors are anticipating a slight increase to interest rates when the Federal Reserve holds its planned meeting on next Tuesday and Wednesday. Speculation on the central bank’s thereafter decision-making going forward will resume throughout the week, however, with issuances of both the Consumer Price Index and Producer Price Index serving as the latest indicators of borrowing cost potential augmentations in the months ahead. 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, on a modest winning streak of four straight sessions, moved out to an early gain again yesterday. In all, equities, led by the Dow Jones Industrials, leaped out to an early advance of more than 100 points. The S&P 500 Index rose in tandem at the outset, while the NASDAQ saw some back-and-forth action in the first half hour on selective profit taking in the technology group. It seemed as though stocks were holding their own, even as Treasury note yields climbed early in the day, as the Street prepared for next week's Federal Reserve Board meeting that seems almost certain to include an interest-rate increase.
Regarding the market, stocks climbed early in part following news that the United States was ending sanctions against China-based ZTE. Leading the early gainers, meantime, were the energy stocks on higher oil prices. Overall, the market is continuing to benefit from better economic fundamentals at home and the aforementioned strength in the technology sector. However, this latter group's dominance was not on display yesterday morning, and this fact led the NASDAQ lower. In all, as we passed the first hour of trading, the Dow was still up 95 points, while the S&P 500 was flat, and the was lower to the tune of more than 40 points.
Meanwhile, the split market persisted into the early afternoon, so that as we reached the 1:00 PM (EDT) mark in New York, we had the Dow still advancing by just over 100 points, but the NASDAQ in full retreat heading lower by some 60 points, or almost one percent. Interestingly, some of the year's weakest performers, such as Procter & Gamble (PG – Free Procter & Gamble Stock Report), were gaining nicely, even as a group of heretofore strong issues, such as Facebook (FB) wilted in midday action. This group rotation would then carry over into the latter stages of the session.
Another issue that seems to be on investor minds is the upcoming FOMC meeting, with the Federal Reserve set to hold that two-day affair next Tuesday and Wednesday. There seems to be almost unanimity of thought that the central bank will vote to increase borrowing costs by a quarter of a percentage point at that time. Other items of note will be the issuances, also next Tuesday and Wednesday, of both the Consumer Price Index and the Producer Price Index. Although the Fed, as noted, is almost certain to tighten the monetary reins just a little, the ebb and flow of pricing is still critical for rate going forward.
As to the later action in the market, the session's bifurcated performance continued over the course of the afternoon, with the Dow entering the final hour of the session still ahead by some 80 points, while the NASDAQ, suffering selective technology reversals, had pressed lower by about 60 points. The small-cap Russell 2000, meantime, had turned weaker, as well. Investors will note that it has been these latter two composites that have led the market's advance in recent weeks. So, it seemed to be a combination of sector rotation and profit taking at work yesterday.
We then saw little change into the close, with the Dow concluding the session up 95 points, while the NASDAQ dropped 54 points. The S&P 500, meantime, was flat, but there was an eight-point slide (or 0.5%) in the NASDAQ. Looking ahead to the situation abroad this morning, we see that shares in Asia were off sharply in overnight trading; in Europe, the principal bourses are now trending down, as well, ahead of the G-7 economic summit. Also, oil, a gainer yesterday, is now lower and Treasury note yields, off yesterday, are now down again. Finally, U.S. equity futures are poised for the market to show early losses, on a day with little economic news of note save for the G-7 summit in Quebec. - Harvey S. Katz, CFA