After The Close - The final trading day of June, a month that was high on the volatility scale, concluded in a fitting way. That is with investors taken on another rollercoaster ride. The major U.S. equity indexes started out the session in negative territory, with some profit taking following three upbeat days for the equity market. However, as the final day of the trading week progressed, the early losses were pared, and the tech-heavy NASDAQ and the broader S&P 500 Index were even able to push into positive territory by the middle of the session—the Dow Jones Industrial Average, though, was not able to break through, except briefly. From there, the indexes traded in a tight band for much of the second half before some late-day selling in the blue chips was seen. Our sense is that the late-day volatility may have been caused by some end-of-the-quarter portfolio rebalancing for the major institutional investors. At the closing bell, the Dow 30 was sharply lower, falling 115 points; the NASDAQ finished nominally higher; and the S&P 500 Index was off modestly. Still, advancers led decliners on both the Big Board and the NASDAQ.
Despite a down month for equities in June, it proved to be a very successful first-half of 2013 for those with long positions. It was the best first-half showing for the market since the turn of the century, with each of the 10 major sectors, most notably the consumer discretionary and financial groups, contributing to the double-digit gains for the major indexes. Year to date, the Dow 30, the NASDAQ, and the S&P 500 Index are up 13.8%, 12.7%, and 12.6%, respectively.
Since the Federal Reserve in late May began hinting at possibly slowing its bond buying, the performance of the U.S. equity market has been volatile. Though, the recent pickup in volatility has the S&P 500 Volatility Index (or VIX) still only creeping back toward the mean for the market. Nevertheless, the long periods of steady advances witnessed during the first four-plus months of 2013 have been replaced by volatile intraday swings in trading, which have at times been rather pronounced. In recent weeks, the lack of earnings news has had investors focusing on the Federal Reserve and what its next course of action will be. Even the recent solid economic news, particularly on the consumer and housing fronts, has not taken investors focus off the Fed, as the nation’s economic performance will likely dictate whether or not the lead bank reduces its stimulus (i.e., quantitative easing) measures.
Speaking of the economy, next week will bring reports on manufacturing activity (Monday), vehicle sales and manufacturing orders (Tuesday), non-manufacturing and the trade gap (Wednesday), and employment and unemployment (Friday).
Turning back to today’s session, the performance among the 10 major sectors was mixed. On the plus side, were solid showings from the energy, basic materials, and utility issues. Conversely, investors were selling some of the consumer staples, healthcare, and industrial names.
Looking ahead to next week, with second-quarter earnings season still about a fortnight away, we expect volatility to play a part in a five-day stretch that includes the celebration of Independence Day on Thursday. This will probably make for light volume sessions in the trading days surrounding the holiday. Such a scenario has historically made for some pronounced swings in trading. We shall see. -William G. Ferguson
At the time of this article's writing, the authors did not have positions in any of the companies mentioned.
12:20 PM EDT - The stock market pulled back earlier this morning, but has since reversed course, paring its losses. As we pass the noon hour in New York, the Dow Jones Industrial Average is off 66 points (-0.4%); the broader S&P 500 Index is lower by five points (-0.3%); and the NASDAQ , which had shown some leadership earlier, is now off slightly. Market breadth suggests that the market may be a bit stronger than the major averages would suggest. Specifically, advancing stocks are outnumbering decliners by a narrow margin on the NYSE.
The market sectors also show a mixed performance. There are advances in the consumer cyclical names. The energy and utility issues are also doing better. In the basic materials area, the miners are having a good session, as gold prices are rising a bit. In contrast, the technology area is weak, as shares of computer services are sluggish. The financial stocks are off a bit, too, led lower by the real estate and mortgage related names.
Technically, the S&P 500 Index seems to be encountering some minor resistance at its 50-day moving average, located at 1,620. Many traders watch these key levels, which may give them added significance. It will be important to see how the rest of the day’s session unfolds. Clearly, if the bulls can gain control in the afternoon, and push the market higher, the rally, which started a few days ago, may have some staying power. Moreover, some volatility may reflect the fact that today is the last trading session of the second quarter, which may have fund managers scrambling to dress up their portfolios. The VIX is slightly lower today, and that may be a positive indicator.
The economic news released today was minimal. Earlier this morning, the Chicago PMI for June came in a bit lighter than had been anticipated. We also received a favorable reading on consumer sentiment, as the University of Michigan‘s survey showed a large upward and final revision for June. This release may have helped turn the market around. Next week, we have a holiday schedule. However, on Friday, the Government’s employment report for the month of June is slated to come out, and that will not go unnoticed- especially on what will likely be a semi-holiday atmosphere with accordingly light volume.
In corporate news, Nike (NKE) stock is lower. Profits beat expectations, but some investors are likely concerned about the outlook. BlackBerry (BBRY) shares are plunging on a weak release. - Adam Rosner
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
Stocks to Watch from The Survey – BlackBerry (BBRY) is in the spotlight this morning, after the smartphone manufacturer reported dismal May-period results, which included a surprising quarterly loss. The company fell short of investors’ expectations on virtually every other metric, as well, including sales, handset shipments, and gross margins. The stock is plunging in the premarket as a result. Shares of Accenture (ACN) are also down notably ahead of the bell, after the consulting company released mixed results for the May interim and offered disappointing guidance. Nike (NKE) stock is also indicating a lower opening this morning, though only slightly. The athletic footwear and apparel giant delivered solid May-quarter results, but investors appeared to focus on management’s warning that sales in China would likely decline in the near term, as the company adjusts the fit and style of its products to better suit tastes in that nation. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The month of June and the first half of this year, at least as far as the stock market is concerned, conclude today. And while there has been no June swoon, to borrow an oft-used headline from the sports pages, this has not been a month in which the bulls have prospered.
Of course, it could have been worse, and, in fact, it had been a notably less-comforting month to those long equities before the last three days, which have seen the bulls regain a portion of the ground lost earlier this month. Actually, the prior setback got under way before the month commenced, with the market seeing a modest amount of profit taking from May 22nd to this past Monday. Since that time, however, stocks have rallied, in part on some reassuring comments by Federal Reserve Board members, who have been trying to play down comments issued last week by Fed Chairman Ben S. Bernanke on the pending move to slow down the pace of asset purchases.
However, it is not that these monetary architects have differed very much in their thrust from Mr. Bernanke. It is just that they have said the same things differently. But that apparently has been enough to assuage the ebullience of the briefly triumphant bears.
Of course, Fed watchers aren't the only ones cheering, as the Dow Jones Industrial Average, in rising by 114 points yesterday, made it three triple-digit point gains in as many sessions. There also are those who closely track the daily, weekly, and monthly doings on the economic front. For them, yesterday provided some further solace, as personal income and consumer spending both rose nicely in May, while jobless claims fell back a bit in the latest seven-day stretch. Finally, there was further good news on the increasingly buoyant housing front, where the National Association of Realtors, a major trade group, yesterday said that the number of people who signed contracts to buy homes in the United States jumped in May to its best level in some six years, an indication that housing sales likely will climb further in the months to come. That said, we caution that the recent spike higher in mortgage rates might serve to slightly dampen such presumptive enthusiasm.
Now, a new day dawns, and the economic news today will be limited to a consumer sentiment survey from the University of Michigan due out some 15 minutes into the trading session and a report, 15 minutes later on manufacturing activity in the greater Chicago area. Such data should not rattle investors, although next week's flurry of critical data, including reports on U.S. manufacturing activity, non-manufacturing, and employment for the month of June all hold the potential to be major market events.
As to that pending data, and their potential impact, we note that the U.S. jobs and unemployment survey, which is always a headline grabber, and one that can often turn heads on Wall Street, will be issued next Friday, which is a regular trading day, but one that will probably have very light volume as many traders and brokers figure to be away from their desks enjoying the semi-holiday atmosphere, following the prior day's celebration of July 4th. So, in that potential vacuum, volatility, already high, could step up another notch or two.
As to the here and now, following a mixed session this morning in Europe, and a further retreat in gold to below $1,200 an ounce, our equity futures have given back their earlier healthy gains and are now pointing to no better than a mixed opening when trading commences in about a half hour from now. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.