After The Close - The bears took hold of trading on Tuesday, the first day of a holiday-shortened week. Through mid-afternoon, despite some attempts at recovery here and there, the major market averages remained firmly in negative territory up until about the final hour of trading. Global trade continued to be the primary influence here, but unlike last week that storyline was decidedly unsupportive. A glimmer of positivity came from Amazon.com (AMZN), which became only the second company ever to hit a $1 trillion market valuation. Then, close to 3:00 PM EDT, the Dow broke even, after shedding as much as 150 points. Home Depot (HD – Free Home Depot Stock Report) and JPMorgan Chase (JPM – Free JPMorgan Stock Report) were the primary drivers for the relative bounce back. And the more-mixed tone was certainly broad based, as the S&P 500 and NASDAQ each approached their respective breakeven lines in the final stanza of the session.
Last week’s trading was near-uniformly positive, as auspicious economic data and statements from the Fed, coupled with the conclusion of another solid earnings season, stoking widespread buying. The S&P 500 and NASDAQ each set all-time highs, while the Dow rose to its highest level since the early-year correction. This was especially encouraging as it pertained to trade, a subject that has caused much investor concern in recent months. The United States remains in protracted negotiations with China, Canada, and its European Allies. Most recently, an agreement with Mexico (and the potential follow-up deal with northern neighbor Canada) helped to embolden the bulls.
But over the weekend, a number of reports and developments injected another dose of uncertainty to this geopolitical arena. A series of tweets by President Trump suggested that the country may not be as eager to enter into a new NAFTA-style deal as investors might have hoped. Meanwhile, a report indicated that the White House was prepared to institute another $200 billion in tariffs on China, the world’s second largest economy. Dealings between the two nations have been fraught for some time, so the potential amplification of tensions weighed on traders for large stretches of today’s session.
Elsewhere, U.S. domestic crude oil rose early in the session as the Gulf of Mexico braced for the approaching storm. Two facilities were evacuated ahead of Tropical Storm Gordon, which figures to disrupt supplies in the periodically oversaturated oil market. These initial gains were capped, however, by the reported increase of stockpiles at the Cushing, Oklahoma facility. With Gordon expected to be upgraded to a Hurricane by the time it makes landfill in several days’ time, the commodity market could see additional buying in the days ahead. U.S. sanctions on Iran and efforts by OPEC to stabilize overseas output are also potential near-term boons here.
Overall, Tuesday was a win for declining shares, which nearly doubled the number of advancing issues. Still, the major averages finished the session much better than their midday nadirs. Looking ahead, the week will feature a handful of closely watched updates from the business beat. But perhaps no release will be as crucial as Friday’s employment report, which will ultimately determine how traders view the strength of the economy and future moves by the Federal Reserve. As always, stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not have any positions in the companies mentioned.
Before The Bell - It continues to be all about trade, or at least it was leading up to that before the just-ended Labor Day Weekend, which we hope was a happy and safe one for our loyal readers. To wit, early last week when there were strong expectations that a trade deal would be worked out with Mexico, the stock market rallied. And those gains were furthered when the outcome of the talks with our southern neighbor proved fruitful. Then, late in the week, there were mounting expectations of a deal with Canada. In between, there were additional headwinds with China, as new tariffs were indicated and even more levies were threatened. And stocks fell back somewhat.
Specifically, on that China news, equities faltered on Thursday, with the Dow Jones Industrial Average falling by nearly 140 points. Then, after Canada's trade negotiator said that there was no deal yet by early afternoon on Friday and that talks were tense, stocks slipped further, in particular, those domiciled on the Dow. As before, when trade headwinds blow, the damage was mostly confined to the industrial stocks, such as Boeing (BA – Free Boeing Stock Report), while tech stalwarts, such as Apple (AAPL – Free Apple Stock Report), continued to set record highs. A roadblock seemed to come as reports surfaced signaling that the President was unwilling to make compromises with Canada.
Of course, the main problem on trade remains China, where our government is apparently now committed to imposing tariffs on an additional $200 billion in goods coming out of that economic powerhouse. Overall, sentiment remained strong, following a solid August in which the major large-cap indexes all scored gains. The trade developments come after the conclusion of second-quarter earnings season, which was an excellent one, and ahead of this week's report on non-farm payrolls, this morning's data on the key manufacturing sector, tomorrow's survey on the trade balance, and the next FOMC meeting later this month.
Meanwhile, stocks began the final day of August with modest losses, as the Dow fell by just over 100 points in the morning. But the NASDAQ, on the aforementioned strength in Apple and a further move past the $2,000 mark in Amazon.com (AMZN), pressed higher. In the meantime, the late afternoon saw most of the leading equity sectors head lower. However, the overall stock market was more balanced, with gaining and losing stocks in more of a deadlock. The big casualties were the energy and basic materials issues. As we look ahead to the new week, our sense is that the economy will start to take a bigger role due to the pending releases.
Things continued to just meander about as the close of trading beckoned. As before, it was all about trade as the final trades were made. In fact, based on optimism that a deal with Canada would get done later in the day, the averages put on a mini-rally into the close. On point, the Dow markedly pared its deficit, while the other indexes, including the S&P 500, moved into the green. This upturn evolved after news broke that Canada would be included in the revised NAFTA deal with Mexico even as final details of a pact were still to be worked out.
Looking ahead to a new week and month, following the strong August, we see that the major indexes in Asia were mostly higher overnight, while in Europe, the leading bourses are weaving a lower pattern, thus far on trade concerns. In other markets, oil is trading up notably; Treasury yields are edging higher as trade worries linger; and U.S. equity futures are nudging a bit higher, at this hour. Up ahead on this busy week for the economy are a series of reports, headlined by this Friday's employment report. In the meantime, trade winds likely will continue to blow. Stay tuned, as the unofficial end to summer arrives in hot steamy New York City. – Harvey S. Katz, CFA