After The Close - The major U.S. indexes closed the final day of the first half of the year on a generally up note. Though the previous four days were markedly more mixed, today saw both the S&P 500 and Dow Jones Industrial Average occupy positive territory from bell to bell, with the latter getting a lift from Nike’s (NKE - Free Nike Stock report) quarterly outperformance on its way to a 63-point increase, albeit there was some last-minute selling to pare the gains somewhat. Meantime, the NASDAQ, under increasing pressure recently due to profit taking and other developments in the tech sector, shed 4 points on the day. Market breadth favored advancing stocks by a two-to-one ratio.
The business beat offered some mixed data this morning. While May’s personal income rose and personal consumption expenditures posted a nominal gain, according to the Commerce Department, today’s bullish tone was challenged by the University of Michigan’s most-recent consumer sentiment reading. Sentiment fell to 95.1 this month (from 97.1 in May), the lowest level since the election. The average reading for the first half, however, was the highest since 2000, underscoring just how positive overall sentiment has been thus far in the year. The market reflected this overall optimism in the afternoon, with each of the large-cap indexes adding on to their daily gains as the day progressed.
Meanwhile, the oil industry is hoping today’s reported U.S. rig count decrease (the first since January) is a harbinger for a broader turnaround. But we are not sure that’s in the cards, at least not in the immediate future. Domestic crude oil has suffered extensively from a global glut in oil supplies. Efforts by OPEC and other producers to curb drilling were not enough to reverse the troubling trend, with little relief in sight. Investors have recently taken advantage of the reduced prices here, but we expect the challenges faced in the commodity market will loom for some time.
So, as we close the chapter on the best half-year performance by the global markets since early 2009, we believe the rally’s persistence will hinge on several factors. Corporate earnings will be closely watched, with second-quarter reporting set to commence in late July. The Federal Reserve’s monetary policy, a valuable reflection of economic strength and the determining factor in interest rates, is another major story heading into the back half. And finally, traders will invariably be keeping a close eye on the Capitol, where GOP lawmakers are vying to pass a slate of legislation before next year’s midterm election season heats up. The impetus for the run up was the election of President Trump, so the implementation of promised tax, regulation, and trade reform is necessary to keep the wheels rolling for the remainder of 2017. - Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
11:45 AM EDT - After a difficult performance on the penultimate day of this seesaw trading week, the major U.S. equity indexes started the final day of June, a month that has been constructive for stocks, in mixed fashion. However, on the strength of positive earnings news from a Dow-30 member (see below), some M&A activity, decent reports on the U.S. economy, higher oil prices, and possibly some bargain hunting after yesterday’s pullback, the major averages are rallying modestly today, though off of their early highs.
Thus, as we near the noon hour on the East Coast, we are seeing some selective buying on the large-cap Dow Jones Industrial Average and the broader S&P 500 Index. Meantime, the NASDAQ is having a harder time holding its recent gains, bouncing back and forth around the neutral line. The healthcare, and technology groups are modestly weaker today. The rise in bond yields seems to be having a negative impact on stocks today and offsetting some of the aforementioned positive catalysts.
That said, looking ahead to the second half of the session, we don’t have a sense of whether the bulls or the bears will ultimately win out today. The broader small- and mid-cap sectors are putting in lackluster performances right now and the advance/decline ratios are painting a mixed picture. There are more winning issues on the Big Board, but losers are holding the advantage on the NASDAQ. Investors should note that it is the final day of the second quarter and first half of the year, which may result in some portfolio rebalancing in the final hour of trading. That may play a big role in which way the equity market finishes this week. Overall, it has been a strong first half of trading in 2017.
From a sector perspective, the leadership is coming from the economically sensitive consumer and industrial groups. The consumer discretionary sector is getting a boost from a better-than-expected report from Dow-30 component and shoe and apparel giant NIKE (NKE - Free Nike Stock Report). Strength in the international and direct-to-consumer businesses powered the outperformance. On a constant currency basis, revenues were up 7%. That increase easily eclipsed management's recently reduced guidance that aimed for a comparison slightly below the 5% growth posted in the February interim. The strong report also is giving a boost to the Dow Jones Industrials today.
Meantime, we did get some news from the business beat this morning. Before the market opened, the Commerce Department reported that personal income increased $67.1 billion (0.4%) in May, while personal consumption expenditures (PCE) increased $7.3 billion (0.1%). Then at 10:00 A.M. (EDT), the University of Michigan reported its final reading on consumer sentiment for the month of June. The report showed that consumer sentiment slipped from 97.1 in May to 95.1 this month. Although consumer sentiment slipped to its lowest level since President Trump was elected, the overall level still remains quite favorable. The average level of the Sentiment Index during the first half of 2017 was 96.8, the best half-year reading since the second half of 2000. - William G. Ferguson
Before The Bell - After a late and rather sharp selloff on Tuesday and a strong comeback on Wednesday, which looked at the time to be reassuring to the bulls, Wall Street appeared ready to run still higher yesterday. After all, the news from the labor front was reassuring, as weekly jobless claims held at a low level, while the overall economy received a lift as the second and final revision of opening-quarter GDP showed a 1.4% advance. That was higher than both the earlier revision and expectations of 1.2%. So, things appeared set up for a decent second-quarter increase by the economy.
In fact, the good news did not end there, but extended, as well, to the banking sector, where all of the major financial houses had just received good grades on their so-called stress tests. In the stress tests, which were administered by the Federal Reserve, the banks were deemed to have passed tests that measure a company's capital needs. With satisfactory scores in hand, the banks now had the road cleared for further share buybacks and solid dividend increases. And, in fact, several banks announced actions on both fronts yesterday. The stocks generally rose on this news.
However, these constructive tidings aside, the sellers still massed, taking over following the first few minutes of indecisive buying. The problem had nothing to do with the trio of recent developments cited above, but rather reflected another meltdown in the suddenly vulnerable technology sector. In all, after that first feeble attempt to rally, the bottom again fell out of the tech group, as a number of high-profile names in that category encountered new waves of selling, on an abrupt change in sentiment toward the previously popular sector.
Meanwhile, the market continued to press lower, and as it did, the fear gauge, or the VIX, soared, suggesting that some concerns were entering the market. And, in fact, the selling did escalate until the Dow had tumbled by a session worst 257 points in the early afternoon. The NASDAQ, though, took an even bigger proportionate hit, tumbling to an afternoon loss at one point of nearly 150 points before some late-buying helped to pare the deficit somewhat. What did rise throughout the day were bond yields, with the 10-year Treasury note inching ahead to 2.27% in late dealings.
The selling eased off as the afternoon wound down, with the Dow at one point trimming its deficit by more than 100 points, before a last-minute dip increased the losses a little. In any event, it was a broad-based decline for the day and puts the bears in control for the week thus far. Today is the final trading day of the half and we could see some window dressing, which is often a reason for traders to gobble up some stocks. We shall see. In other news, shares of Rite Aid (RAD) tumbled after rival Walgreen Boots Alliance (WBA) announced it was dropping a bid to buy Rite Aid. Walgreen stock inched higher on the news.
But mostly, the selloff was tech driven, and it was rather severe, even with the market bouncing off of its session lows late in the day. In all, the Dow wound up shedding 168 points; the S&P 500 Index lost 21 points; and the NASDAQ, under pressure all day, fell 90 points. Just about all groups dropped on the day, with large losses in technology and telecom. Also, losing issues beat gaining stocks by more than two-to-one on the NYSE. Then, after the close, footwear maker and Dow component NIKE (NKE - Free Nike Stock Report) reported results that exceeded expectations and the stock rose in after-hours trading.
Meanwhile, the final day of the half is now under way around the world, and stocks in Asia were lower in overnight trading, while on the Continent, the European bourses are trading higher on a rebound in the tech group, at this hour. In other markets, oil is up and seems set for its biggest weekly gain since mid-May; gold is down a bit; and U.S. Treasury yields are nudging higher. Finally, our futures are trending higher, at this hour. In other news, the University of Michigan will issue its latest consumer sentiment readings a bit later this morning. Note also that stock market trading will conclude at 1:00 PM (EDT) on Monday July 3rd ahead of Independence Day on Tuesday. - Harvey S. Katz