After The Close - Following yesterday’s mixed session, the major market averages spent Tuesday in negative territory. Elevated interest rates and a disappointing quarterly report from a Dow componentHome Depot (HD – Free Home Depot Stock Report) emboldened sellers from the start, with the bulls showing few signs of a resurgence as the closing bell approached. Although the small-cap Russell 2000 was more indecisive, it eventually slipped into the red, underscoring the broad-based nature of today’s retreat. Declining shares outnumbered advancing stocks by a 2.2-to-1 ratio.
For the most part, looking at bottom-line growth, Corporate America’s ongoing earnings season has been a success. But traders continue to focus on disappointing filings, as well as difficult comparisons in the quarters ahead, rather than first-quarter operational strength. Foreign policy developments have also weighed on equity averages in recent weeks. Previous tensions with China and North Korea have been somewhat mollified, but a growing strain with Iran has introduced another variable into the geopolitical equation.
And while the aforementioned Home Depot beat consensus profit estimates for the recently reported period, a lagging sales tally highlighted some concerns for the broader construction and retail sectors. Customer transactions were down from the year-ago period, which is especially concerning given the importance placed on the spring season by the big box building supply retailer. Its shares were some of the worst performers within the Dow today, with Intel (INTC – Free Intel Stock Report), Caterpillar (CAT – Free Caterpillar Stock Report), and 3M (MMM – Free 3M Stock Report) also faring particularly poorly. Elsewhere, the NASDAQ slipped throughout the day as the so-called FANG stocks – Facebook (FB), Apple (AAPL – Free Apple Stock Report), Netflix (NFLX), and Google’s parent Alphabet (GOOG) – and recently scrutinized Tesla (TSLA) shed market value.
But one area of particular strength was domestic crude oil, which rose to within striking distance of its three-and-a-half-year high. The White House’s decision last week to exit the Iran nuclear accord of 2015 has stoked geopolitical tensions in the Middle East while also favoring the price of U.S. product. That is, with less Iranian output, the price-growth outlook of domestic crude is improved. Still, wider gains were kept in check by looming concerns that economic growth in China may be slowing down. Also helping to limit the daily per-barrel advance was a strengthening U.S. dollar.
Overall, the session belonged to the bears. Each of the major market sectors posted aggregate losses, with healthcare, technology, and telecommunications paring the most value. Looking ahead, investor focus will turn once more to the Federal Reserve as earnings season gradually comes to an end in the coming two weeks. The central bank is likely encouraged by positive consumer spending data, which may add merit to the case for an additional rate hike in December. This prospect would likely hold back more pronounced future gains by equities, and will be closely watched by traders. 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, which stormed ahead last week, started the current five-day span nicely to the upside, with the Dow Jones Industrial Average, which had fallen below 24,000 earlier this month, climbing back to just shy of the 25,000 mark in the early going yesterday. The initial blue chip gain of more than 160 points, which could not be sustained, as we entered the afternoon, was underpinned by optimism that our country and China might be able to hammer out a trade deal after the President pledged to help tech firm ZTE in that country get back on its feet.
There also was optimism expressed about upcoming talks between the United States and North Korea, with the leaders of both countries set to meet next month in Singapore to attempt to hammer out an accord under which the latter nation would abandon its attempts to become a nuclear power. There also was a focus on Iran, where our earlier-implemented nuclear deal was abandoned last week, Sanctions are being placed on that country, which is a big oil producer, and those sanctions have led to a further jump in oil prices.
Clearly, with these goings on and with the winding up of first-quarter earnings season, the emphasis by traders has shifted overseas. Also, we have just had the latest Federal Reserve meeting and we still are several weeks away from the next employment report. So, this focus is logical. That said, we still are getting some key economic releases this week. However, for now, the concentration is on the global scene. And that is helping the market move past its recent correction levels as we head higher.
The upward push continued into the afternoon, although the session's morning peak advance was not to be neared again. Overall, the Dow stayed with gains well under 100 points, staying between advances of 50 and 80 points, for the most part. As we look ahead, we sense that non-earnings matters will hold sway on the Street for the most part over the next few weeks. That can be good or bad. For the moment, however, optimism reigns, and stocks continued to head higher as the session wound down.
As we headed to the home stretch, there was some modest further backtracking that momentarily put the S&P 500 in the loss column. But as the closing bell sounded, the Dow was ahead by 68 points and the NASDAQ was a winner by eight points. As to the S&P 500, it added two points. However, the small-cap Russell 2000 fell more than six points, suggesting that the rally may be getting a bit stretched. Breaking things down, we see that declining stocks held a narrow lead on gaining issues on the NYSE, while six of the 10 key sectors rose on the day.
So, following this mixed session, we see that stocks were mostly posting losses in Asia overnight, while in Europe so far this morning, the leading bourses are heading slightly higher. Elsewhere, oil prices are rising again in early dealings and yields on the 10-year Treasury notes, which ended matters at 3.00% in late trading yesterday, are passing hands at a yield of 3.02% this morning. Finally, U.S. equity futures are now trending lower on geopolitical concerns, suggesting that we are likely to see a somewhat weaker open when trading resumes later this morning. – Harvey S. Katz, CFA