After The Close - Equities opened nicely higher this morning, and managed to advance further in the afternoon. Investors turned more optimistic, thanks to some positive developments overseas. Of note, Britain’s plans to exit the EU appear to be more balanced, and the situation in Hong Kong may be temporarily improving. Furthermore, there was some positive economic data reported in China, suggesting the economy there may not be in such bad shape. Also, while new tariffs were put in place a few days ago, the United States is set to continue negotiations with China in the weeks ahead, and that may be helping sentiment. At the end of today’s session, the Dow Jones Industrial Average was ahead 237 points; the broader S&P 500 Index was up 32 points; and the NASDAQ was higher by 103 points. There was widespread buying of stocks today, as advancers outpaced decliners by a margin of roughly three to one on the NYSE. Most of the major equity groups forged ahead with leadership in the technology and basic materials issues. However, the conglomerates and healthcare names did not participate in the rally.
Meanwhile, in economic news, the nation’s trade gap came in at $54.0 billion during the month of July. Analysts had been looking for a similar reading. However, our trade deficit with China increased. Elsewhere, the Federal Reserve’s latest Beige Book report showed that the economy has been holding up reasonably well despite ongoing international trade difficulties. Tomorrow will be a busy day for economic reports, with the employment situation taking center stage. Specifically, we will get a look at Automatic Data Processing’s (ADP) employment numbers for the month of August, as well as the latest weekly initial jobless claims report. Investors will be watching these issuances closely, as the government is set to release the August Nonfarm payroll figures before the market opens on Friday.
In the corporate arena, a few retailers delivered their quarterly reports. Of note, shares of American Eagle Outfitters (AEO) sank today, after the apparel retailer posted mixed results and provided a soft outlook. In addition, shares of Vera Bradley (VRA) retreated after the women’s bag manufacturer put out a lackluster report.
Technically, stocks continue to trade in choppy fashion. The ongoing volatility suggests that traders are in need of some direction. Clearly, better trade relations between the U.S. and China would be a help in this regard. However, a full-fledged trade deal seems a ways off. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market, following a seesaw late August, started off September on the defensive and in a big way, with the Dow Jones Industrial Average quickly surrendering 400 points in the first morning after the long Labor Day Weekend. Two factors accounted for the early selloff. First, tariffs from both the United States and China went into effect as the new month began. And even more consequential, perhaps, was the news that manufacturing activity had contracted in August for the first time in a decade. That news, issued some 30 minutes into the trading session, really took the wind out of the market's sails.
As to that report, the Institute for Supply Management, a trade source, observed that its ISM purchasing managers' survey had come in at 49.1. That was nearly a full point into contraction territory (a reading below 50.0) in some three years. During that span, the ISM Index averaged 56.5. The escalating trade conflict with China is clearly taking a bite out of manufacturing, as well as the economy in general. Leading that ISM survey lower were declines in new orders, production, employment, and backlogs. This survey was a warning shot on the economy and could signal troubles up ahead.
As to the market, it stayed sharply lower throughout the morning, holding some 300-400 points down in the Dow Industrials during the first half of the session. The big concern, of course, was trade, but the setback in manufacturing was clearly worrisome, as well. As to the manufacturing survey, expectations had been for a 51.0 index. In July, the tally had been 51.2. This industrial area will have to be watched closely for signs of an overall downturn. In the meantime, the companion non-manufacturing survey will be out on Thursday. Expectations are that that index to rise from 53.7 to 54.0.
Meanwhile, the day's selloff continued into the afternoon, with the Dow loss again flirting with 400 points as we entered the final two trading hours. The NASDAQ, which too was weak, was off by 110 points in mid-afternoon. As before, it was trade and the manufacturing sector that were constraining efforts by the bulls to bring stocks back. Also lower, were bond yields, with the manufacturing miss pummeling Treasury note returns, as well. In all, the yield on the 10-year Treasury note fell back to 1.46%. The yield on the 30-year bond descended to 1.94%.
As has so often been the case this year, however, the Street started to come back, with the final two hours seeing a modest and gradual chipping away at the day’s worst losses. On point, after being off by more than 420 points at the morning's nadir, the Dow came back nicely, erasing about a third of the day's worst deficit to finally close off by 285 points. The NASDAQ, once off 115 points, ended down 89 points; and the S&P 500 Index shed 20 points, well off from its worst (35-point) setback. Still, the day was not a good one as the often difficult month of September got off to a rocky start.
Looking out to the new trading session, we see that the key indexes were higher in trading in Asia overnight, while in Europe, the bourses are gaining strongly at this hour. Also of note, oil prices are edging upward; gold prices are pressing downward; and Treasury note yields are rising a little. Finally, U.S. equity futures are suggesting early strong gains for the stock market.
As to the economy, following tomorrow's data on non-manufacturing activity, the key end-of-week release will be the government's report on August non-farm payrolls. That Friday release is forecast to show that the nation added 149,000 new jobs, versus 164,000 in July. - Harvey S. Katz, CFA