After The Close - Wall Street, which fashioned the proverbial hat trick during the middle of this week, with three consecutive impressive stock market rallies after a difficult rest of October, appeared on track to make it four in a row today. In fact, emboldened by suggested upbeat news on the trade front with China, further selective optimism on the earnings side, and a favorable employment report, the bulls stormed ahead at the open with the Dow Jones Industrial Average surging to a gain of close to 200 points. That jump followed a strong 265-point advance in that 30-stock blue-chip composite yesterday.

As to the early cheer, the employment report was a big help to the bulls. Specifically, the monthly survey put out by the U.S. Labor Department indicated that the nation had added 250,000 new positions in October, which was well above expectations of 188,000 and the downwardly revised September tally of 118,000 jobs. The latest gains were most noteworthy in health care, manufacturing, construction, and leisure and hospitality. Elsewhere, the labor-force participation rate edged upward; average hourly wages rose by$0.05; and the jobless rate--calculated in a separate survey--held steady at a multi-year low of 3.7%.

So, with stellar job creation and seemingly muted wage inflation at hand, the bulls could feel more confident. A strong earnings report from iconic coffee making and retailing giant Starbucks (SBUX), and a consequent early rise of some 10% in that stock, also helped the equity market sustain its early edge. But there were other earnings issuances that were less well-received. Here, shares of tech behemoth Apple Inc. (AAPL Free Apple Stock Report) fell sharply on a less-than-optimal outlook, while a revenue miss and a subscriber decline at Weight Watchers (WTW) caused that volatile stock to tumble nearly 30% in early dealings. 

Then, after this early buying flurry, worries about Apple, further weakness in the processed food group, and concerns that although wages were up just $0.05 an hour last month, the gain for the past year was 3.1%. And that is a rather worrisome number from an inflation standpoint. Also, there is uncertainty lingering on the trade front. There, the President suggested yesterday that he was seeing progress with China in hammering out a deal. However, his top economic advisor, Larry Kudlow, agreed with earlier reports suggesting that no deal was at hand. In addition, bond yields ticked up, with the 10-year Treasury note's yield climbing to 3.21%   

Not surprisingly, stocks reversed course after the first hour and the Dow and the NASDAQ fell notably, with the former dropping some 100 points into the red, while the latter lost about 80 points in short order. Things then went from bad to worse as we headed into the afternoon, with the Dow tumbling by 300 points at one time late in the lunch hour before coming back again. Volatility was high, meantime, with exaggerated up-and-down moves taking place in rapid succession. The afternoon comeback, which pared the Dow's loss from 300 points to fewer than 100 points in minutes, came after the President again said a trade deal was close.  

This back-and-forth then would continue into the close, with the Dow, the S&P 500, and the NASDAQ all staging comebacks on the heels of trade hopes. The selectively weaker profit scene and the large Apple loss held the bulls in check. The fact that wages rose 3.1% in the past 12 months was another negative, suggesting pressure on the pricing front. But our thinking is that the latest month's data, which showed a nominal $0.05-a-hour gain, may be more critical and was clearly less problematical. In the end, the stock market could not generate enough strength to return to the green, thereby ending a frantic week on a modest down note. 

Looking ahead to next week, which we think will be another volatile stretch, there are the midterm elections on Tuesday and the FOMC meeting on Wednesday and Thursday to contend with. And we could see several rally attempts and additional backtracking in response. The stock market still seems oversold on a short-term basis and less frothy following the recent month's selloff. However, stocks are not cheap and with earnings season moving closer to running its course, especially on the large-cap side, a new catalyst may be need to set in motion the next sustained market rally. Trade progress would clearly be helpful in that regard.   - Harvey S. Katz, CFA

At the time of this article's writing, the author had positions in AAPL.


Before The Bell - Wall Street attempted the proverbial "Hat Trick" yesterday. Specifically, after rallying during the final two days of a brutally bearish October, the equity market again pushed higher in early dealing yesterday. To wit, after the first several minutes of trading, the market, empowered by strong earnings from DowDuPont (DWDPFree DowDuPont Stock Report), a component of the Dow Jones Industrial Average, jumped out to a gain of 170 points in that composite. DowDuPont, meantime, surged more than 6% in the first hour of the session. Then, after giving back much of that early strength, the market regrouped, with the Dow again compiling a triple-digit advance for a time.

Meanwhile, the latest rally comes on the heels of a woeful October, in which the Dow Jones Industrial Average fell 5.1%; the S&P 500 tumbled 6.9% (its poorest showing since 2011); and the tech-heavy NASDAQ gave back 9.2%. That was this latter index's worst performance since November 2008, when we were in the midst of a severe bear market. Still, the problems bringing on the sharp market drop last month, concerns about rising interest rates, trade difficulties between the United States and China, and fears about a possibly slowing economy and earnings are still with us. They also may linger for a while yet.

So, even with this renewed strength, there remain issues to be dealt with and the prospect of further elevated volatility. In other early news on this penultimate trading day of the week, jobless claims for the latest seven-day stretch fell to 214,000. Continuing claims remained at their lowest level since 1973. That data came ahead of the just-issued October employment report (see below). Also of note, the Institute for Supply Management reported that its survey on manufacturing activity came in at 57.7 % for October. That was below September's expansion rate of 59.8% and expectations of a 59.0% reading.

Within that report, we saw that new orders slowed their rate of growth, as did production, employment, and inventories. However, backlogs were essentially flat, while prices increased sharply for the month, suggesting some inflation. The report, meantime, did not appear to concern traders, who continued to push the market higher in an impressive rebound for the third day in a row. Now, in addition to the just-released U.S. jobs report, we also will be getting data on factory orders later this morning. So, it is a news filled period as a new 30-day span gets under way.

The early strength then continued into the second hour of trading. With the Dow's advance reaching and surpassing the 200-point mark as we neared the noon hour in New York. The strong showing then would move along after lunch and as we went toward the middle and late stages of the afternoon, boosted, in part, by optimism on the trade front after the President expressed conviction a deal with his counterpart in the world's second largest economy would get done. The Dow's uptick would stay in the 200-point area as we reached the session's final hour. The advance would be even stronger on the NASDAQ and among the smaller-cap indexes.

The market would proceed to strengthen a bit further into the close, with the Dow ending matters ahead by 265 points and the tech-driven NASDAQ rising by 128 points. Then, after the close, Apple Inc. (AAPLFree Apple Stock Report) reported results and left the Street wanting regarding its outlook. The stock fell some 7% in after-hours and still is suggesting a lower opening this morning. Meanwhile, after a strong showing in Asia overnight on hopeful progress on the trade front and a solid performance thus far in Europe this morning, our markets seem headed for a strongly higher start.

As to the employment report, the Labor Department indicated that the nation added 250,000 new jobs last month. Expectations had been for a rise of 188,000 positions. Meantime, the jobless rate held steady at 3.7%, which was in line with forecasts. Regarding the surge in non-farm payrolls in October, the gains came in health care, manufacturing, construction, and transportation. Also, the labor-force participation rate rose by 0.2%, to 62.9%. For the past 12 months, the average monthly increase came to 211,000. Finally, average hourly earnings rose $0.05 last month. For the past year, the increase was 3.1%.

All in all, it was an upbeat report and one that should sit well with investors, which have seen sentiment become more positive in the past several days. – Harvey S. Katz, CFA

At the time of this article’s writing, the author held positions in one or more of the companies mentioned.