After The Close - For the most part, it was a directionless day on Wall Street, with much of the action coming during the first few hours of the session. The investment community had to weigh some disappointing overseas news versus some positive U.S. economic data—and in the end the latter seemed to win out among investors. Specifically, the major averages were off sharply at the commencement of trading on concerns about both China and Eastern Europe (more below), then regrouped quickly thereafter following a favorable report on U.S. nonmanufacturing activity. The indexes then traded in a narrow band for much of the afternoon hours before once again turning positive in the last 90 minutes. The large and mid-cap stocks fared a bit better than the small-cap issues. Overall, the spreads between winning and losing stocks on the Big Board and the NASDAQ were narrow, with the latter holding a slight lead on both.
As noted, the news from overseas was far from uplifting. The investment community was initially unnerved by data showing that manufacturing activity in China declined for the fourth-consecutive month in April. The geopolitical tensions between Ukraine and Russia also weighed on the market, as reports surfaced that Russian warplanes were seen flying over Crimea earlier today. The international concerns were behind the U.S. market’s sharp initial selloff.
However, the equity market got a boost a half hour into the session when the Institute for Supply Management, a Tempe, Arizona-based trade group, provided a positive snapshot on the services sector, which accounts for a large chunk of the nation’s economic output. Specifically, the ISM Nonmanufacturing Index rose to 55.2 in April, from 53.1 in the prior month. The positive reading also was well above the consensus expectation of 54.1. All told, 14 of the 18 industry groups reporting showed growth in April. The services data, along with recent strong reports on employment and manufacturing activity, are encouraging signs that the listless first-quarter GDP reading was a onetime event prompted by harsher-than-normal winter weather during the first two-plus months of 2014. Investors reacted positively to the report and it more than offset the dour tidings from overseas.
From a sector perspective, it was primarily up arrows for most of the top-10 groups. That said, we did see some sector rotation during today’s session. The aforementioned disconcerting international news prompted some early “flight-to-safety,” with the more-defensive healthcare, telecommunications, and utilities stocks in demand. In the healthcare area, the biotech and pharmaceutical names were gobbled up. The pharmaceutical stocks were able to overcome a disappointing quarterly revenue report from industry giant Pfizer (PFE – Free Pfizer Stock Report). Conversely, some of the more economically sensitive groups, including the consumer discretionary, financial, and basic materials stocks, were the day’s notable laggards. We think China’s disappointing manufacturing report was the main culprit there.
Looking ahead to the remainder of week, the economic news will be very light with the only notable report coming tomorrow in the form of data on the international trade gap. Meantime, the first-quarter earnings season is fast approaching the finish line, but we will receive a few notable reports this week, including the latest quarterly results from entertainment giant and Dow-30 component Walt Disney (DIS – Free Disney Stock Report), healthcare company Humana (HUM), and alcoholic beverage maker Molson Coors Brewing (TAP). The lack of economic and earnings stateside may have investors focusing more on the international front, which we have seen over the last few months can raise the volatility in the market, especially with the fluid nature of the escalating tensions between Ukraine and Russia. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:15 PM EDT - The U.S. stock market opened lower this morning, but has since turned around. At just past noon in New York, the major averages are all in positive territory The Dow Jones Industrial Average is up two points; the broader S&P 500 Index is ahead one point; and the NASDAQ is tacking on three points. Market breadth still shows a divided market, as declining issues are about even with advancers on the NYSE. Strength can be seen in the energy stocks, and in the utilities, which have been strong performers lately. Meanwhile, there is some weakness in the financial sector. Some of basic materials issues are trading lower, as well.
Technically, stocks remain quite volatile. The S&P 500 Index has been range bound for the past two months. Notably, making a sustained move past 1,890 has proven difficult. Beyond that, the 2,000 area will be even more difficult to obtain, and may be of some “psychological” significance to investors, as it corresponds to a large round number. Further, with the first-quarter earnings season now winding down, and the summer months approaching, it is not clear what will serve as the catalyst needed to push stocks higher. This is especially the case in the current market, as equity valuations are a bit elevated, and the Federal Reserve is less accommodating.
There was limited economic news released this morning. However, the ISM Services Index rose to 55.2 in April, from 53.1 in March. Notably, the current month’s reading was better than had been expected. Tomorrow, we get a look at the nation’s monthly trade balance.
Meanwhile, traders received some corporate reports this morning. To wit, JP Morgan Chase (JPM - Free JPMorgan Stock Report) stock is moving lower, as the banking giant reduced its guidance. In the drug area, we heard from Pfizer (PFE - Free Pfizer Stock Report). That stock is off slightly, after that company posted strong profits, but a light top line. After the market closes today, we hear from AIG (AIG). - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned
Stocks to Watch from The Survey – Earnings season rolls on, and one of today’s biggest winners looks to be online travel agency Orbitz Worldwide (OWW), which is seeing its stock rise sharply ahead of the bell, thanks to strong March-period results. Other equities moving higher in the premarket on earnings news include Berkshire Hathaway (BRK/B), the holding company run by famed investor Warren Buffett, chicken, beef, and pork processor Tyson Foods (TSN), energy company Occidental Petroleum (OXY), and pet pharmacy PetMed Express (PETS).
Not every earnings release garnered a warm reception on Wall Street, however. Notably, shares of Pfizer (PFE – Free Pfizer Stock Report) are indicating a slightly lower opening this morning, after the drugmaker, which has been courting industry peer AstraZeneca (AZN), delivered better-than-expected earnings, but missed the mark on revenues. The stock of fellow pharmaceutical company Auxilium (AUXL) and bank JPMorgan Chase (JPM – Free JPMorgan Chase Stock Report) are also moving lower ahead of the bell on disappointing updates.
In other news, Gregg Steinhafel, Chairman and CEO of big-box retailer Target (TGT), has stepped down from his posts, effective immediately. CFO John Mulligan will take over the corner office on an interim basis until a successor is found. TGT stock is down slightly in the premarket, in response. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The U.S. economy received a jolt of surprisingly good news to end the week on Friday. And, as if on cue, the stock market initially headed higher. However, Wall Street could not maintain those gains, as troubles on the international front soon caused the sellers to step in and put equities under selective pressure over the balance of the session. Overall, the indexes closed on a mixed note, with the Dow Jones Industrial Average being the weak link; the small- and mid-cap indexes, meantime, were largely positive.
Specifically, the Labor Department reported that non-farm payrolls had jumped by a much better-than-expected 288,000 in April. That strong gain notably exceeded the earlier estimate of 215,000 new positions. Moreover, the job creation totals for February and March were revised higher, with February's employment gain going from 197,000 to 222,000 and March's increase in payrolls being revised from 192,000 to 203,000. At the same time, the unemployment rate, which had been expected to ease from 6.7% to 6.6%, instead dropped sharply to 6.3%, the lowest jobless level in almost six years. On the other hand, the labor force participation rate fell, suggesting there are many unemployed who have simply given up looking, and that is not a good thing. Overall, though, this was a favorable report, as the job gains were sufficient to likely lift the economy nicely into the spring and summer. But they were not strong enough, we sense, to encourage the Federal Reserve to step on the monetary brakes more strongly.
So, why did the stock market not respond better? In fact, after moving to an early 60-point, or so, gain in the Dow Jones Industrial Average, the market reversed course and by late morning was generally in the red, albeit moderately. What hurt stocks, apparently, were reports of Russia's call for an emergency United Nations meeting over Ukraine. That call renewed concerns over global crude oil prices and supplies, and pushed this on again, off again global crisis back on the front burners with the approaching weekend. Crude oil prices, meantime, briefly reclaimed the $100-a-barrel mark in New York. In Europe, oil is moving in on $109 a barrel. Gold prices, too, shot up on the global concerns, with the precious metal advancing by some $20 an ounce.
What caused the Russians to ask for the UN meeting, seemingly, was the news that Ukraine had launched a military operation to regain control of the pro-Russian separatist stronghold of Slovyansk. Tensions surrounding Russia, Ukraine, and the West have been a periodic cause of stock market angst and increased volatility. Also, on the minds of traders, apparently, is the fear that the better jobs numbers could cause the Fed to start raising interest rates sooner rather than later. We think such concerns are premature at this juncture, as one number will probably not do it for the central bank, especially with inflation still so low. Finally, there is the continuing flow of first-quarter earnings reports. These have been better than generally forecast, but there have been exceptions to this rule, and in some cases such outliers have created ripples through the market.
So, there we are. Instead of relief and joy following the better employment numbers, we had some very modest selling due to concerns about the Fed and the global outlook. True, the reversals were not headline grabbing, but they were enough to cause some late stirring ahead of the weekend. All told, the Dow gave back 46 points; the Standard and Poor's 500 Index eased by just three points; and the NASDAQ, with some very late selling edged lower by a mere four points. It was not a spirited retreat, to be sure, but was enough of one to cool down some of the bullish ardor for stocks--at least for one day.
Now, looking at the week ahead of us, we have just two economic reports of note. Specifically, the Institute for Supply Management will be issuing monthly figures on non-manufacturing activity this morning at 10:00 AM EDT. A further pickup in growth in this area is the consensus forecast. Then, tomorrow morning, the Commerce Department will release the monthly trade gap figures. This issuance tends to be less of a market-mover than the non-manufacturing figures. We'll also be getting our share of quarterly profit releases, although first-quarter reporting season is starting to wind down a bit.
Looking at the trading day, meanwhile, we find that stocks were generally mixed in Asia overnight, while they are moving lower in Europe thus far this morning on fears about persistently low inflation in the euro zone and the seemingly worsening conflict in Ukraine. Shares in Germany are especially weak. And on our shores, the futures are moving decidedly lower, presaging a weaker start when the week's trading resumes at 9:30 (EDT). - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.