After The Close - After a modestly positive performance in the opening hours, the major U.S. indexes rose swiftly on Wednesday afternoon. The rally was led by the energy sector, where the fallout from President Trump’s decision to exit the Iran nuclear accord spurred a spate of buying which drove U.S. crude prices to their highest levels in nearly four years. It was this decision that catalyzed a temporary selloff yesterday, before sentiment softened as the closing bell neared. Today, investors appeared not too concerned with the geopolitical development, as advancing shares outnumbered declining issue by a 1.7-to-1 ratio.
At the end of the session, the indexes maintained the bulk of their daily gains. The S&P 500 and NASDAQ led the way, as the expectation for lower oil supplies from Iran lifted domestic commodity prices. That anticipation, coupled with ongoing adherence to OPEC’s 2018 drilling accord extension, are supporting the value of U.S. crude, which finished the day above $71 a barrel. The consequences of the United States exit from the pact, and subsequent sanctions that will be levied upon the Middle Eastern nation, are yet unknown. But most traders are not overly concerned, it seems, as this round of controls will not boast the same unilateral support from European allies. Thus, the overall impact on oil supplies will likely be muted, especially when compared to the more broadly approved measures taken by the Obama Administration several years ago.
Indeed, energy stocks were the primary drivers for today’s uptick. Within the Dow, Chevron (CVX – Free Chevron Stock Report) and Exxon Mobil (XOM – Free Exxon Stock Report), as well as several financial components, were among the biggest gaining blue chips. These advances helped to offset weakness by Disney (DIS – Free Disney Stock Report) and UnitedHealth Group (UNH – Free UnitedHealth Stock Report), with the former shedding some value amidst concerns in its networks business and uncertainty surrounding its bid for Twenty-First Century (FOXA), which mass media rival Comcast (CMCSA) has recently set its sights on. Basic materials and technology stocks were also strong in trading today, which more than negated notable Treasury note-related struggles by utility issues.
Looking ahead, the rest of the week features a slew of earnings releases from Corporate America. This will likely be the primary factor traders consider through next week, when Wal-Mart (WMT – Free Wal-mart Stock Report), Home Depot (HD – Free Home Depot Stock Report), and J. C. Penney (JCP) headline a busy week of reporting in the retail sector. Still, given the muted reaction to what has been a largely impressive first-quarter reporting season leads us to believe the near-term earning-related upside is minimal. 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 - Some late global concerns on Monday, which cut notably into the day's earlier strong equity gains, then continued in a modest way in the formative stages of yesterday's stock market session. As before, the worries centered around the Iran nuclear deal, which the President had threatened to scuttle, with his announcement on that controversial subject being made yesterday afternoon (more below). Although there wasn't all that much nervousness ahead of that pending decision, there was just enough of it to cause some selling in a still somewhat frothy stock market.
As to yesterday morning's session, there was contained selling early on, with the Dow Jones Industrial Average, a 95-point winner the day before, giving back some 80 points in the first few minutes of trading. Then, after a brief snapback, which saw the Dow enter the plus column, renewed moderate selling brought that composite back down some 50 points. Small losses were tabulated as well by the S&P 500 Index and the NASDAQ, while the smaller-cap composites led the way with nominal gains. Thereafter, stocks turned higher again, but once more just momentarily. It would be that sort of morning.
The focus on international events, which could increase in the days ahead, as trade negotiations with China and nuclear efforts with North Korea loom large, likely will step in to fill the void left by a strong earnings season that is now winding down to a degree--at least in terms of the large, high-profile names that dominate the S&P 500 Index. Also, with the Federal Reserve meeting out of the way, and with the month's employment report and manufacturing data in the rearview mirror, the turn to global events would seem somewhat logical. Meanwhile, the market settled into a neutral pattern as the morning concluded.
Things did not change all that much as the afternoon began and all eyes were fixed on the White House to see what the President would indicate on Iran. As the afternoon got under way, word started to creep out that the deal would be scrapped and sanctions restored. And, indeed, as the 2:00 PM (EDT) hour of decision drew near, such chattering grew louder, and, in fact, the forthcoming decision was to withdraw from the three-year-old nuclear deal. Sanction, meantime, also would be put on that nation. That result would then cause stocks to weaken notably around 2:30 PM, with the Dow briefly falling back to a loss of more than 125 points.
Exiting the Iran deal now keeps a major campaign promise, but also sets up potential conflicts with some of its European allies, which are bent on retaining the accords that their nations negotiated. Then, just as quickly as the market's losses ballooned, they moderated, with gradual improvement as the afternoon ran its course. All told, it would wind up to be a global-event driven day, with corporate development, albeit still evolving, clearly taking a back seat to the Iran situation. At this time, the potential for major shifts and tensions seem limited, and the market's eventual tepid close would underscore that fact.
In all, with the late charge, the Dow ended matters ahead by a scant three points, while the S&P 500 and the NASDAQ lost and gained one and two points, respectively. Breaking things down further, six of the top ten equity groups fell on the day, with telecom and the utility sector losing the most, while technology and the industrial category led the way higher. Also, on the day, advancing and declining stocks were in a near dead heat. Now, the focus, albeit still somewhat on the ramifications of the Iran development, should now shift back to the corporate and economic fronts to a degree.
Meanwhile, looking out on a new day, we see that shares in Asia were reacting to the change with respect to Iran by showing losses in overnight dealings, while in Europe, where opposition to the President's position was most vociferous, the leading bourses are posting early gains amid sharply higher oil prices. Also, the 10-year Treasury note, which concluded matters at 2.97% yesterday, is now passing hands at 3.01%, while U.S. equity futures are poised for a notably higher opening when live trading resumes later on this morning. Stay tuned. – Harvey S. Katz, CFA