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After The Close - Thursday afternoon’s trading saw a continuation of the mixed-to-negative tone that characterized the morning activity. The S&P 500 and Dow Jones Industrial Average extended their daily losses well into the final hour, before paring the deficits as the closing bell approached. The selling of banking stocks, brought on by an increasing belief that the Federal Reserve will forego another rate hike at the end of the year, as well as softness among entertainment components, was a primary driver for the bearish undercurrent. The NASDAQ, meanwhile, managed to remain positive for most of the second half of the session, albeit by a consistently slim margin.

Despite the major indexes’ up-and-down finish to the day, overall market breadth was effectively even. Strength in the healthcare, technology, and utility sectors helped to offset softness elsewhere. The aforementioned downturn in entertainment stocks was caused by Disney (DIS - Free Walt Disney Stock Report) CEO Bob Iger’s announcement that profit growth would be flat this year. The selling hit other mass media stocks, too, with CBS Corp. (CBS), Comcast (CMCSA), and Viacom (VIAB) all shedding significant market value.

U.S. crude oil prices held mostly steady, losing only $0.07 per-barrel, as better-than-expected refinery output somewhat alleviated fears about a slow recovery from Hurricane Harvey in the Gulf of Mexico. That region faces another potentially devastating storm this weekend in Hurricane Irma, which could sow additional supply concerns. Regardless, the near-term demand environment is likely to be unpredictable as facility closures impact productivity.

Turning to Washington, and it appears yesterday’s positive reaction to a potentially bipartisan debt-limit agreement gave way to some doubts this morning. Specifically, investors likely crave more clarity on the matter before sending the averages higher. Tax reform appears to be taking a more prominent role in the Administration’s communications, which could serve to buoy sentiment as the bulls attempt to gain some ground on the final day of what has been a middling holiday-shortened week in the market.

Ultimately, the tug-of-war forecasted during our midday commentary came to fruition, with neither advancing nor declining stocks gaining a notable edge. The indexes all finished near their breakeven lines, giving the bulls one last attempt to offset Tuesday’s selloff when tomorrow’s session begins. - Robert Harrington

As of this article’s writing, the author did not hold positions in any of the companies mentioned.


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11:55 AM EDT - The major U.S. equity indexes after Tuesday’s big selloff and yesterday’s partial rebound are taking a bit of a breather this morning. Overall, trading is mixed with the major averages bouncing in and out of positive territory, with none too far removed from the neutral line. The news about North Korea building up its nuclear capabilities has been relatively offset by reports that President Trump has reached an agreement with Democrats to raise the debt ceiling and signs that the central banks both here and on the Continent will continue with their accommodative monetary policies in the coming months. Both events are deemed as being supportive to equities by market pundits.

Indeed, comments yesterday from Federal Reserve Governor Lael Brainard that the U.S. central bank should be cautious in raising interest rates while inflation remained weak helped stocks. Then, this morning, the European Central Bank (ECB) concluded its monetary policy meeting and followed it up with some dovish comments from President Mario Draghi. The ECB leader said that bank’s quantitative easing will continue through the end of this year or beyond. That gave a boost to stocks on the Continent and pushed the euro higher versus the dollar.

The monetary policy news has prompted some notable sector rotation in recent days. The drop in U.S. Treasury yields—the benchmark 10-year Note continues to slide—and the worries about the active hurricane season are hurting the financial stocks, most notably the insurance, reinsurance, and banking issues. The damage from Hurricane Harvey and the looming effects of Hurricane Irma on the insurance companies are driving investors away from the insurance sector. Meantime, the lower fixed-income yields are likely to hurt the earning power of the banks. Conversely, the higher-yielding equity groups (i.e., consumer staples, telecommunications, and utilities) are the beneficiary of the drop in bond yields, as their appeal to income-oriented investors increases. Other sectors in favor this morning include technology and healthcare. The healthcare stocks, along with the more defensive-oriented higher-yielding issues, also are in favor for their safety appeal, which is desired right now with the escalating tensions between the United States and North Korea.

Meantime, we did get some surprising news from the energy sector this morning. Specifically, there was a build in crude oil supplies and a smaller-than-expected drawdown on gasoline inventories. Both were unexpected, but had little effects on both oil and gasoline prices, as the surprising build numbers were offset by fears of the possible negative impact from hurricane damage on supplies going forward. As of now, it is looking like Hurricane Irma will avoid the Gulf Coast region, which would be good news for the oil companies and refiners.

Looking ahead to the second half of the session, it is shaping up to be a tug-of-war between the bulls and the bears. Right now, the spread between advancing and declining issues is razor thin. And, with all of the aforementioned nonearnings variables in play today, and the fluid situation in Washington D.C. with Congress back in session, it impossible right now to predict whether the bulls or the bears will hold the upper hand by the closing bell. Stay tuned. - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - Following a steep selloff on Tuesday, which saw the major equity indexes suffer their worst drubbing in nearly four months, the stock market began yesterday's session intent on staging at least a partial comeback. And, in fact, that is exactly what stocks did do in the first hour of trading, as the Dow Jones Industrial Average, a 224-point loser on the first trading day of this holiday shortened week, quickly raced ahead to an early gain of more than 95 points. Leading the way higher on this day following the latest nuclear scare from North Korea, were the technology stocks, with several household names posting healthy advances.

In part, the comeback was driven by comments from Federal Reserve Governor Lael Brainard, who said that the central bank should be cautious in raising interest rates while inflation remained weak. There is mixed sentiment about whether or not the Fed will hike borrowing costs this year, with a slight majority feeling that such an increase likely will be held off until 2018. Meantime, sentiment also improved after word came out that the Democratic leaders in the House and Senate would agree to a debt limit increase. In other news, the Institute for Supply Management reported a strengthening in non-manufacturing activity in August.    

With regard to this latter survey, the posting came in at 55.3. That was on par with expectations of 55.2 and was better than July's tally of 53.9. Contributing to the pickup were gains in production, new orders, employment, prices, and backlogs. As for the other key issue, North Korea, there seemed to have been no new noise out of that country. So, stocks rallied in the morning hours, with the Dow mostly holding on to gains of 50 to 80 points. Meanwhile, the NASDAQ, a source of major weakness on Tuesday, gave back its early advance and was holding around breakeven as the morning concluded.  

In all, as we reached the noon hour in New York, the stock market was mixed, with the Dow still up some 60 points, the S&P 500 Index ahead slightly, and the NASDAQ essentially flat. The small- and mid-cap indexes, meanwhile, were just over breakeven, while most groups and a plurality of Big Board stocks were higher. The market then got its second wind, as traders awaited the 2:00 PM (EDT) Beige Book issuance from the Federal Reserve. That economic summation is eagerly awaited always, as it will have some bearing on the central bank's monetary policy. The Fed next meets on September 19th and 20th.    

Regarding stocks, they perked up in early afternoon, with the Dow rising toward the day's high at that point, while the NASDAQ, a brief late-morning casualty, turned nicely higher in early afternoon. As for the Beige Book, it noted that the nation's economy was continuing to grow at a modest to moderate pace across the 12 Federal Reserve Districts surveyed. However, the report did note that the auto industry was slowing, a turn of events that had been signaled in the latest monthly car industry survey issued last Friday. The market, meantime, continued to track higher into the latter stages of the afternoon. 

Things then steadied until minutes from the close, when the Dow backed off modestly, but still closed ahead by 54 points. Gains of eight and 18 points, respectably, were tallied by the S&P 500 and the NASDAQ. So, it was a solid showing, overall, on this second trading day of the week. Looking ahead to a new day now, we see that stocks were mixed in Asia overnight, while in Europe, yesterday's uneven finish is being followed up this morning by gains. Also, gold is higher; Treasury yields are off slightly; and oil is little changed, after gains the last two sessions.

Finally, U.S. equity futures are suggesting a mixed opening when trading resumes later this morning. Stay tuned.   - Harvey S. Katz, CFA 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.