After The Close - With fears of a trade war looming, the Dow Jones industrial Average and S&P 500 each spent most of Monday in negative territory. The former was most impacted, as the blue chip index fell roughly 150 points lower at its nadir; the broad-based composite oscillated between either side of its breakeven line during the afternoon. Meanwhile, the tech-laden NASDAQ was a little more resilient, spending the session in positive territory despite intermittent spates of selling in the late morning and mid-afternoon. Overall market breadth favored neither gaining nor declining shares.
Today’s downturn is in stark contrast to the sudden wave of optimism that drove U.S. equities higher on Friday. That uptick was propelled by a solid February jobs report. The release revealed that the nation added 313,000 positions last month, but the most auspicious takeaway was the stagnation in wage growth. But the inflation-related positivity was offset by the White House’s implementation of tariffs on steel and aluminum imports. While recent days have seen exemptions for Canada, Mexico, and with others perhaps to follow, the potential of an ensuing trade war continued to unsettle investors on Monday.
The Dow was dragged lower by shares of Boeing (BA – Free Boeing Stock Report), Caterpillar (CAT – Free Caterpillar Stock Report), and United Technologies (UTC – Free United Technologies Stock Report) and, accordingly, industrial stocks were the broader market’s biggest laggards. Technology shares were notably higher, while the consumer cyclical and utility groupings were also relatively strong. Otherwise, though, most of the rest of the sectors exhibited mixed-to-negative performances.
Elsewhere, U.S. crude oil also returned the gains from its late-week bounce back. Funds and investors cut their stakes on the commodity amidst a growing consensus that domestic output will rise in 2018. This will largely negate the positive tailwinds of a lower rig count, steadily low unemployment levels, and the ostensibly broad adherence to OPEC’s drilling accord. The per-barrel value of U.S. crude fell more than 1%, to $61.36.
Looking out, the rest of the week’s trade will be at least partly influenced by tariff-related concerns. Developments on that front will be joined by speculation over next week’s Federal Reserve meeting, when most analysts expect a hike in interest rates. However, last week’s favorable jobs report (and especially the moderated inflationary pressures) will likely lead to no surprises as it relates to the central bank’s forward-looking monetary policy. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - An up-and-down stretch of trading last week on Wall Street ended on a very upbeat note. Early in the week the bears were having their way, as investors were unnerved by news late in the previous week that the Trump Administration had proposed a series of tariffs on steel and aluminum products shipped to the United States. This protectionist maneuver brought concerns about a trade war emerging between the United States and many of its trading partners, which would ultimately drive the cost of materials and manufactured products up. Then when news emerged that President Trump’s top economic adviser, Gary Cohen, had resigned his post due to his concerns about the proposed tariffs, the selling really picked up. However, the bulls returned later in the week, with a huge statement of their own. The late-week buying frenzy was fueled by an excellent report on the labor market on Friday (more below).
At the conclusion of trading on Friday, it was a big win for the bulls, with the Dow Jones Industrial Average jumping 441 points (or 1.8%). The Dow 30’s percentage gain was matched by the broader S&P 500 Index and the tech-heavy NASDAQ Composite, with the latter index ending the session at a record high. The buying was heavy and all encompassing, with advancing issues outnumbering decliners by a nearly three-to-one ratio on both the New York Stock Exchange and the NASDAQ. Likewise, all of the 10 major equity groups finished the bullish session comfortably in the black. The leadership came from the economically sensitive groups, with outsized gains in the technology, industrial and financial sectors. Investors should note that higher-yielding spaces (i.e., utilities, consumer staples, and telecom) brought up the rear, though, as the recent run-up in fixed-income yields has made bonds attractive alternatives to the higher-yielding stocks. Bond yields are up three basis points this morning.
Not surprisingly the economically sensitive sectors fared the best on Friday, as the day’s big news came from the business beat. Before the market opened on Friday, the investment community received a very strong report from the labor market. It made for a great reading on many fronts: nonfarm payrolls increased by 313,000 positions in February; the unemployment rate held steady at a very low 4.1%; and a whopping 806,000 individuals returned to the work force last month, as the labor participation rate jumped. The report also showed an increase in hourly wages, but not at a rate that would stoke concerns about inflation, as the level of increase in January did last month. All in all, it was another sign that the U.S. economy is strengthening and the investment community responded in kind.
Turning to the week at hand, the news from the earnings beat will remain quiet, which will likely once again push the focus of the investment community to the business beat. There will be a number of reports issued this week on the economy, including the latest data on retail sales, industrial production, and housing starts. But, perhaps the two most important reports will come from the Labor Department again in the form of consumer and producer (wholesale) prices on Tuesday and Wednesday, respectively. That data will shift the focus of the investment community back to inflation, which has been responsible for a great deal of the volatility we have seen on Wall Street since the beginning of February. Friday’s hourly wage increase in the employment report did not stoke concerns about inflation, but it will be interesting to see if the forthcoming pricing data does. Both report are released one hour prior to the start of trading, so investors will have some time to digest the pricing figures before trading commences.
With less than a half hour to go before the start of the new trading week stateside, the equity futures are suggesting that trading will pick up where it left off on Friday, with the bulls in command. So far overseas today, the trading has been rather bullish. The main indexes in Asia were up nicely overnight, while the major European bourses are in positive territory, as trading moves to the second half of the session on the Continent. Stay tuned. - William G. Ferguson