After The Close - The major averages made a big comeback today after earlier profit-taking that arose from concerns there is a greater chance the Federal Reserve will begin to wind down its bond-buying program as early as its upcoming meeting in two weeks. At the end of the day, the Dow Jones Industrial Average was off only 25 points, after being down as much as 124 points, and the NASDAQ rose one point, after being down by a similar percentage as the Dow. As for the broader market, the selling pressure was more apparent, with declining issues easily outpacing gainers on the Big Board.
Although stocks fell broadly for the fourth session in a row, the overall drop has amounted to a very modest correction in what has been a bull market of historic proportions. One of the major catalysts fueling the bearish sentiment today was a surprisingly strong jobs report from payroll specialist Automatic Data Processing (ADP). That created somewhat of a concern that Friday’s November nonfarm jobs issued by the Labor Department might come in noticeably better than expected. If so, the thinking is that the Fed may well put the brakes on its massive securities purchases sooner rather than later.
While more jobs would signal an improving economy and eventually provide an underpinning for stocks, Wall Street is not eager to see the Fed’s innovative bond-buying program go away. The central bank’s aggressive policies helped lift stocks to record heights. Nevertheless, the changeover to a stock market driven to a greater extent by earnings and consumer spending would likely be welcome in the long run. In the meantime, the prospect of a less accommodative Fed gives investors a reason to take profits.
Notably, however, stocks came well off of their session lows later in the day. That was after the release of the Fed’s Beige book, which offered the same broad characterization of the economy as has been the case in recent months. The takeaway there seemed to be the Fed does not see the need to change its strategy. Still, Friday’s jobs report could provide more ammunition for the bears, as could tomorrow’s expected upward revision to third-quarter GDP.
Among individual stocks, shares of beleaguered retailer J.C. Penney (JCP) fell sharply on heavy volume after the company’s sales growth failed to satisfy investors. On the plus side, social media stocks, such as Facebook (FB) were looked upon more favorably, contributing to the NASDAQ’s relative outperformance. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
12:45 PM EST - The U.S. stock market opened lower this morning, reversed course moving into positive territory a bit later in the session, but is now heading lower. At just past noon in New York, the Dow Jones Industrial Average is off 41 points; the broader S&P 500 Index is down five points; and the technology-heavy NASDAQ is now off six points. Market breadth suggests a mixed tone to the session, as advancing issues are about even with decliners. The major market sectors are also divided. There is some strength in the basic materials group, helped by gains in the precious metals issues. The technology issues also are rising today, with buying in the software names. Meanwhile, the consumer stocks are weak, and the energy sector is declining, with losses in the pipeline companies.
Technically, the market is looking for some support after a three-day pullback. Notably, over the past few sessions trading volumes have been light and selling has been quite orderly. So, it is too early to say that a larger correction is now unfolding. The VIX, which moved higher over the past few days, is still edging higher.
Meantime, there were a number of economic reports issued this morning. For one, the employment situation seems to be improving. According the ADP Employment Change report, there were 215,000 jobs added to the private sector in November, up sharply from the 184,000 logged last month, and well ahead of the consensus view. This may have some speculating that the weekly initial jobless claims, due out tomorrow, and the monthly jobs figures set to be released on Friday, may be strong. While this would indicate that the economy is on the mend, some traders may have concerns that this will prompt the Fed to scale back its asset purchases.
Elsewhere, traders also got a look at the housing situation. New home sales came in at 354,000 units, annualized, in September, which was a bit weaker than had been anticipated. However, sales reached 444,000 units in October, which exceeded expectations. The home builders as a group are trading lower, possibly on concerns about the direction of mortgage rates.
Later today, the Fed releases its Beige Book summation for December, and given the concern about the direction of the Fed’s monetary policy, that release will likely be widely dissected. In fact, some traders may be staying out of the market, at least for now, in anticipation of this and Friday’s employment news.
In the corporate arena, there were a few items worth reporting. Express (EXPR) stock is off sharply, after the apparel retailer issued weaker-than-expected results and guidance. Further, OmniVision (OVTI) shares are down on a disappointing outlook. - 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 – There is some earnings news out today. Notably, shares of Express (EXPR) are plunging ahead of the bell, after the apparel and accessories retailer reported decent October-period results, but cut its January-quarter guidance, citing a weaker-than-expected start to the holiday season. Investors were not impressed with quarterly financials from restaurant operator Bob Evans Farms (BOBE) and imaging chip producer OmniVision Technologies (OVTI), either, and those stocks are indicating lower openings this morning, with OVTI showing considerable weakness. Results from drug store chain Walgreen Co. (WAG) were a bit better, however, and that equity is moving slightly higher in pre-market trading. – 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 - Well, for one week, at least, the classic Monday-to-Tuesday reversal did not work as advertised. To wit, many times in the past, as we have pointed out, a stronger equity market to open the trading week is followed by downward action the next day. Things often work the opposite way on a market decline to start the week. There probably is no good fundamental reason for such behavior; it just seems to happen that way.
However, on Monday, the Dow Jones Industrial Average fell 78 points, pulling the other key indexes down with it. Then, yesterday, stocks fell from the outset of trading and never looked back, with most rally attempts being largely unsuccessful. It appears that for the start of this week, the so-called buy on the dip approach is not working.
Indeed, after falling moderately on Monday, the market fell somewhat more sharply yesterday, with the Dow off in triple-digit territory from mid-session until just before the close, finally ending the day off by 94 points, thanks to some late bargain hunting, but still ending the session below 16,000. The Standard and Poor's 500 Index joined the Dow in the red, easing by almost six points, while the NASDAQ, which had tried to hang in there early, succumbed to the selling as well, falling back eight points. It was not an especially good day to be long the market.
Behind this selloff, which took place on a light news day, with just stronger results on November vehicle sales being of note, was a growing fear that the Federal Reserve will decide to rein in its aggressive monetary easing program sooner rather than later, and perhaps as early as this December 17th and 18th, when the central bank holds its next FOMC meeting. The concern is that the latest business metrics, including reports on manufacturing activity, construction spending, and the aforementioned vehicle sales, especially of trucks, has been strong enough to possibly move the Fed into action now.
Of course, we have had those fears before--most recently in late summer, as many pundits were incorrectly guessing that the lead bank would at that time opt to begin tapering its quantitative easing program, most notably its ambitious bond-buying initiatives. However, such fears proved to be ''greatly exaggerated at that time,'' to paraphrase Mark Twain, as the Fed continued to buy bonds at breakneck speed at that time. Now, though, we are further removed from the government shutdown and the debt-ceiling threats and there may be some legitimate belief that the economy is better able now to function without that extra support than it had been earlier this year. We shall see.
As to the market, the declines were broad based, and concentrated in both the large and small-cap sectors, with almost all equity groups coming under at least some pressure. There were exceptions, of course, with tech icon Apple Inc. (AAPL) benefiting from a brokerage house upgrade. That issue, already flirting with a new 52-week high, gained some added traction yesterday, rising by some 15 points. Several beaten down steel stocks also headed a bit higher on the day, although most basic industry issues joined in on the selling, as did many other groups on this day that clearly favored the bears.
Looking ahead, there will be more news to digest in the coming hours and days. Of note, we will be getting data later this morning on non-manufacturing activity. A companion report on the manufacturing sector, issued on Monday, was stronger than expected. Then, in the afternoon, the Fed will release its Beige Book economic summation. Also, tomorrow, the government will issue its revised third-quarter GDP data; an increase in the estimated growth rate from 2.8% to 3.2% is the consensus forecast. All of this, though, is a prelude to Friday's closely watched issuance on non-farm payrolls for November and the accompanying unemployment rate. A jobs gain of just over 200,000 is the expectation, along with a slight drop, from 7.3% to 7.2%, in the jobless rate. Any marked deviation from these figures could prompt a reaction on Wall Street.
Now, as we look ahead to the day, we note that stocks in Asia were mixed overnight, with the Nikkei suffering a sharp reversal, while the equity market also is directionless in Europe. Over here, meantime, the futures are pointing to a moderate early decline in the market. Much of the late-day action, however, will likely be dictated by what is in the Beige Book. Stay tuned. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.