After The Close - The major U.S. equity indexes started the abbreviated week’s first trading session nicely higher on the strength of some good economic data from overseas and some apparent relief among investors that there was no military response from the U.S. and its allies in Syria over the long weekend after evidence emerged last week that the Assad regime had used chemical weapons in the war-torn nation’s ongoing civil war. Then, shortly after trading commenced, a strong report on manufacturing activity for August (see below) gave investors some more confidence.
But the market averages then proceeded to give back most of the earlier gains, as investors were unnerved by reports that Congressional leaders would likely support any President Obama-ordered military strike in Syria and that the U.S. and Israel had recently conducted a joint missile test over the Mediterranean. However, the rollercoaster ride for investors had one last twist and turn in the final hour, as the buyers once again returned and the market rallied anew to finish the day on a somewhat encouraging note. The Dow Jones Industrial Average and the S&P 500 Index recorded modest gains, while the tech-heavy NASDAQ showed the most relative strength. Overall, advancers led decliners on both the Big Board and the NASDAQ.
The fractious Middle East, which has been a hot-button topic for investors in recent weeks, was once again front and center. Stocks gave back a good deal of their earlier gains after, as noted, came word that President Obama would likely get the support of Congress for a limited airstrike on Syria. Both John Boehner, the Republican Speaker of the U.S. House of Representatives, and Eric Cantor, the House Republican majority leader, pledged support for military action in Syria, while Nancy Pelosi, the Democratic leader in the House of Representatives, said that she believes Congress would support a resolution authorizing the use of U.S. military force against Syria. The price of crude oil, which would probably be affected by any disruptions caused by fighting in the Middle East, rallied after starting the session lower on the aforementioned developments. The events from the Middle East could make for some volatile sessions on Wall Street at least until we get closer to the Federal Reserve’s next two-day monetary policy meeting, which gets under way on September 17th.
Meantime, there was some major news from the telecom sector. Before trading commenced on these shores, we learned that industry behemoth Verizon (VZ - Free Verizon Stock Report) agreed to acquire Vodafone's (VOD) 45% stake in Verizon Wireless for $130 billion in cash and stock. The megadeal pushes the value of mergers and acquisitions made this year in the telecom industry past the $300 billion mark. Earlier this year, Microsoft (MSFT - Free Microsoft Stock Report) purchased Nokia’s (NOK) handset business. It’s the highest volume of telecom mergers at this point of the year since 2000, when more than half a trillion dollars in deals were consummated. Shares of both Verizon and Vodafone, though, were lower on the announcement.
A big week for the economy also got off to a solid start, as the Institute for Supply Management reported that manufacturing activity came in at 55.4, which was the fastest rate of improvement in this area in more than two years, and exceeded the consensus forecast for the latest month of 53.8. The report was another indication that the U.S. industrial base continues to strengthen. Not surprisingly, some of the sectors most closely tied to the economy finished higher. Conversely, some of the defensive-oriented sectors, including the utilities, were out of favor today. The stock market’s higher-yielding equities were also hurt by some sector rotation, as rising rates on fixed-income securities—the yield on the benchmark 10-year Treasury note jumped 10 basis points, to 2.85%, today—are making the high-yielding equities less attractive right now. -William G. Ferguson
12:25 PM EDT - The U.S. stock market moved sharply higher this morning, but is currently struggling to retain these early gains. It will be important to see if the bulls can manage to keep the rally going through the afternoon, or if today’s bounce will become a selling opportunity. As we pass the noon hour in New York, the Dow Jones Industrial Average is just up 25 points, and losing steam. The weakness in this blue chip index lately is somewhat concerning, as it is composed of a broad spectrum of leading companies. The broader S&P 500 Index is ahead eight points. The NASDAQ, which continues to outperform the other averages, is still up 30 points. Market breadth is positive, as advancers are outweighing decliners by about 2 to 1 on the NYSE.
Most of the market sectors are participating in the up move today. There is leadership in the basic materials issues. Notably, this sector, which had been weak for some time, seems to be picking up. The financial stocks are also advancing, which is good to see. In contrast, the utilities are weak, as they typically underperform in rallies. The consumer non-cyclical issues are also lagging today.
Technically, the S&P 500 Index has spent the past few sessions looking for support, following a sharp one day decline. Ultimately, we will have to see if the broad index, currently at 1,640, can move back above its 50-day moving average at 1,660. A few attempts may be needed to cross this critical area. The VIX is slightly lower today, but does not show a major shift in sentiment, as sometimes is the case when the market stages a large move.
Investors received some constructive economic news this morning. For example, the Institute for Supply Management’s Index increased to 55.7 in August, which was better than analyst expectations and also higher that the July reading. Further, construction spending showed some improvement in the month of July.
In the corporate arena, there have been a few deals that may be helping to interest investors in stocks again. In telecom, Nokia (NOK) stock is surging after Microsoft (MSFT - Free Microsoft Stock Report) agreed to buy some of the company’s assets. Verizon (VZ - Free Verizon Stock Report) stock is lower, after that company agreed to buy Vodafone’s (VOD) interest in Verizon Wireless.
Elsewhere, the rally here in the U.S. may have gotten some help from a strong session in Asia overnight. Also, the sense that the U.S., struggling to build support for military action in Syria, may not launch an offensive may also have helped drive the market higher. However, that situation is now changing, as some in Congress are voicing support for a military strike. Any shift there could play a role in the market’s direction. - 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– Corporate news remains limited on the heels of the holiday weekend, but a few companies are in the spotlight this morning. Notably, cellular phone manufacturer Nokia Corp. ADR (NOK) has agreed to sell its handset business to computer giant Microsoft Corp. (MSFT - Free Microsoft Stock Report) for a reported $7.2 billion. Nokia shares are soaring in premarket trading on the news, while shares of Microsoft have slipped modestly. Also, communications mogul Verizon Communic. (VZ - Free Verizon Stock Report) has agreed to purchase the 45% stake it does not already own in its Verizon Wireless joint venture with Vodafone Group ADR (VOD) for $130 billion, according to reports. Shares of both companies are indicating lower openings this morning in what shapes up as a strongly higher start for the market, in general. – Kathryn M. Drew
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - Wall Street closed out a less-than-compelling August on another sour note, with the stock market concluding its worst month since May of 2012 in uninspiring fashion. Stocks were lower through most of the erratic session, with the Standard and Poor's Mid-Cap 400 Index and the small-cap Russell Composite 2000 putting in particularly undistinguished performances on this concluding day of the month.
The underperformance of these two indexes, at least relative to the Dow Jones Industrial Average, the Standard and Poor's 500 Index, and the NASDAQ, implies that investors are becoming more risk averse, as global and domestic uncertainty raise the desire among many traders and investors to assume a more conservative stance. All told, on this final trading day of August, the Dow fell 31 points; the S&P 500 Index shed five points; and the NASDAQ, moved down by 30 points. Each of these indexes, however, lost less than a percentage point; by comparison, the aforementioned S&P 400 Mid-Cap and the Russell 2000 declined by about a percentage point and a half each.
Overall, most of the larger-cap indexes, following this latest setback, are now down about 5% from their yearly and, in some cases, all-time highs established early last month. Initially, the desire to take profits was occasioned by concerns that the Federal Reserve, seeing some generally better economic metrics over the summer, would opt to slow down its rate of bond purchases by this month's FOMC meeting, or just a bit later in the year. Then, in the closing week of the month, heads were turned toward the global stage, specifically in the direction of Syria, when the United States warned that warring nation that its use of chemical weapons could invite military strikes before much longer. Oil prices ratcheted up further on this warning, and stocks succumbed to additional profit taking. Our sense is that a limited strike will be the method of curbing that Middle East nation's military excesses, should President Obama succeed in getting Congress to go along with action against that nation. But even a modest step in that direction could push oil prices still higher.
That is where we stand as we enter a new month, and one that has been anything but kind to investors on a historical basis. As for the economy, it is still giving off a few mixed signals, but, on balance, is showing signs of somewhat greater stability, which is always sought by Wall Street. Of note, revised Commerce Department data issued last Thursday showed that the nation's gross domestic product had gained a much more formidable 2.5% in the second quarter than initially reported a month earlier (1.7%), while Friday affirmed that consumer sentiment had inched higher, as did personal income and consumer spending in July.
Now a new week begins and there will be a quartet of critical reports issued in the days to come, starting with today's release on manufacturing. That metric, which is expected to show a slight slowing in what remains a reasonably decent advance, will be followed later in the week by the companion report on non-manufacturing. Also, we will get the latest data on the international trade deficit, while the end of the week will bring the most closely watched report of the month, when the Labor Department will issue its findings on non-farm payrolls for August and the unemployment rate. In between, the Federal Reserve will issue its Beige Book summation of economic activity across the country. That survey will be used to help the central bank formulate its monetary policies at the next FOMC meeting, which is set for September 17th and 18th.
Meanwhile, as we start the new week, we find that the equity futures are posting big gains, with the S&P 500 Index futures ahead by 13 points and the NASDAQ up by almost 23 points. Behind this surge, and better performances overseas during the night and this morning, were upbeat economic reports out of Asia, a proliferation of deals, headlined by Microsoft's (MSFT – Free Microsoft Stock Report) announcement of a $7.2 billion bid for the phone business of once-dominant manufacturer Nokia (NOK), and a encouragement that the President was delaying a move against Syria by his attempt to secure approval from Congress. All of this points to a solid opening when trading gets under way in less than an 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.