After The Close - The market started trading higher today, as solid earnings reports out of Dow components Cisco Systems (CSCO – Free Cisco Stock Report) after the bell yesterday and Walmart (WMT – Free Walmart Stock Report) this morning drove sentiment higher. At the open, the composites started to rise considerably, and the Dow Jones Industrial Average gained as many as 230 points in the early portion of the session. Meantime, the S&P 500 was up by 40 points at its apex. However, the indices reached an overbought condition, especially when considering the positive price action over the past three days. Sentiment changed course, and the composites started to make a series of lower highs and deeper lows, giving back a notable portion of the day’s gains. Too, this price action is often a negative indication for future price movement, as it has the potential to snowball. All told, the Dow closed the day up 215 points, the S&P 500 finished higher by 25 points, and the NASDAQ gained 76 points.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 2.1-to-1.0 ratio. Materials stocks were some of the strongest performers on the day. However, utilities equities were among the weakest, though this was only on a relative basis.
In commodity news, oil prices rose 1.7%, as demand expectations rose across the market, while some fears about Middle East tensions also helped prices to increase. Too, U.S. Treasury bond yields were generally up. However, the three-month interest rate fell. The VIX Volatility Index was lower today, as demand for options protection fell.
Looking ahead, tomorrow is lighter on the economic front, though the University of Michigan consumer sentiment index for May will be released. In addition, the earnings slate will be lighter than it has been over the past few weeks, but a key report from Deere & Company (DE) will likely provide some insight into the effects on tariffs on goods from China. Still, we think any trade developments will drive changes in market sentiment tomorrow. - John E. Seibert III
At the time of this article’s writing, the author held positions in the following: (WMT).
Before The Bell - Another day, another selloff on Wall Street--at least early in the session. And it was mostly related to international trade, specifically our intensifying trade war with China. On point, that dispute, which has produced a tit-for-tat series of tariffs and counter levies, now seems to be taking a modest toll on the global economy. And that is worrying investors. To wit, after China reported a lesser increase in industrial production in its latest monthly survey, U.S. equities got off on a down note at the start of trading yesterday morning. In fact, the Dow Jones Industrial Average would quickly fall as many as 190 points before seeing aggressive buying.
Among the early casualties on those global concerns were Caterpillar (CAT – Free Caterpillar Stock Report) and JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report). The semiconductor stocks, also on the skids recently, fell further early on, as well. But it was not only China's economy that is wilting; we also are seeing some choppiness. For example, retail sales data showed a 0.2% drop in April, with sales falling for automobiles, electronics, appliances, clothing, and on the Internet. However, sales at department stores rebounded nicely in April after earlier declines in that category. Expectations had been for a 0.2% rise in activity.
At the same time, the latest survey on industrial production showed a 0.5% drop during April; expectations had been for a flattish reading. Also, capacity utilization at the nation's factories fell last month, easing from 78.5% to 77.9%. That was the lowest reading this year. But the descent in stocks would prove temporary, and as the morning progressed the buyers stepped back into the fray. The impetus for this turnaround was news that the President plans to delay the implementation of auto tariffs. According to sources the delay on such levies could be up to six months.
So, after that first rash of selling, stocks really firmed up, and as we neared the lunch hour in New York, the Dow had climbed to a gain north of 100 points. The advance in the NASDAQ was especially strong, with that composite jumping by some 80 points. The advance would gain further momentum, so as we entered the final 90 minutes of trading, the blue chips were ahead by some 175 points, while the NASDAQ was ahead by over 100 points. Optimism on the aforementioned delay in tariffs on cars and auto parts was the big factor in the rally, as it would counter some of the concerns with China.
Things would not change much down the home stretch, although there was some last-minute selling in the core averages as the session concluded. Clearly, investors remain sensitive to trade news, both out of China and now Europe. The late selling, which brought the closing gain in the Dow Industrials from nearly 190 points to 116 points likely reflected some wariness at holding stocks overnight, as the news cycle evolves so quickly. Elsewhere, the S&P 500 Index added 17 points and the NASDAQ climbed 88 points. The gains in the smaller-cap composites were much more modest, as these stocks are less affected by global trade.
Looking out on the penultimate trading session of the week, we see that stocks were showing little change in overnight dealings in Asia, while in Europe, the early trends are lower on trade concerns. At the same time, Treasury note yields, off again yesterday, with the 10-year note's return easing to 2.38%, are now nudging a bit lower again, while oil prices are climbing for a third day in a row. Finally, as equity market volatility continues to soar, the current indication is that U.S. stocks are poised to open the trading session to the upside. – Harvey S. Katz, CFA