After The Close - The markets closed the session yesterday much lower. The U.S. Treasury Department labeled China a “currency manipulator” following the large move in the yuan. However, the futures markets started to creep higher throughout the night. And the yuan began to stabilize. By the time the U.S. stock market opened, the indices were solidly in the green, though the final push higher was helped by a few decent earnings reports. The Dow Jones Industrial Average was up by as many as 228 points in early action, while the other indices were higher in tandem. Still, this change was short-lived, and the composites slipped a bit. The Dow even fell into the red for a brief spell. However, the markets regained the earlier momentum, and marched toward daily highs. Indeed, the Dow was higher by 321 points at its apex. Overall, the markets finished not far from the highs, and the Dow was up 312 points, the S&P 500 recovered 37 points, and the NASDAQ increased 107 points.
Additionally, market breadth was rather positive, as advancers outpaced decliners by a 2.0-to-1.0 ratio. Technology stocks were among the best performers on the day, while energy equities were among the weakest, hurt by a decline in the related commodities.
In commodity news, oil prices sank today, as expectations for future demand fell. Traders are expecting decreased levels of trade to hurt oil use in the future. Meantime, U.S. Treasury bond yields were mixed, as near-term yields were higher, and long-term yields were lower. An inversion of the yield curve is generally a negative for financials’ earnings. The VIX Volatility Index was lower today, as demand for options protection fell.
Looking ahead, tomorrow will have a slew of economic data released. This includes the Energy Information Administration’s weekly report on crude oil inventories.
Also, earnings season will continue, as CVS Health (CVS) is slated to report quarterly results before the market opens. Additionally, trading may be affected by Dow-component Disney (DIS – Free Disney Stock Report), which released its operating performance after the bell today.
Still, we think any trade developments between the U.S. and China will drive market movement tomorrow. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
Before The Bell - Ill trade winds blew across the global markets yesterday, as we began a new week and the first full five-day span of August. On point, after plummeting late last week on disappointment that the Federal Reserve did not take a more aggressive stance on the monetary front and then falling still further after the President announced that he was planning to slap a 10% tariff on $300 billion in goods from China, the U.S. and global markets fell still further early yesterday on an intensification of these concerns.
In all, after the trade war escalation did not abate over the weekend and China moved to devalue its currency, to its lowest level in a decade, U.S. stocks plunged across the board, with the Dow Jones Industrial Average falling by more than 600 points as the noon hour arrived in New York. The losses then continued into the lunch hour. Also plunging were the S&P 500 Index, the NASDAQ (with technology taking an especially big hit) and the small-cap Russell 2000. Shares of Apple (AAPL – Free Apple Stock Report) alone were off by about $10 at midday.
Also alarming was the further drop in U.S. Treasury note yields, with the 10-year note seeing its yield fall to 1.75% at midday. The fall in yields pushed a widely watched Treasury-market recession indicator to the highest alert since 2007, which was just before the recession of 2008-2009. That was a formidable 32 basis points below the yield on three-month bills, a clear inversion. That drop, plus the free fall in China's currency has really brought in the sellers on Wall Street. Reports also indicate that China is halting imports of U.S. agricultural products.
Things then went from bad to worse for a time, with the Dow plunging to a loss of more than 700 points as traders returned from lunch. The NASDAQ also was getting more deeply into the red, falling by some 300 points at that time. True, there would be minor attempts to pare the losses, but through mid-session they would all falter and thus the averages continued to fall, with many other big names dropping sharply as the selling saw no let-up to that point. In all, it was the worst day of the year at mid-session for the Dow and the S&P 500.
The selling then went on in the afternoon and would crest as we entered the final hour of trading, with the Dow plunging at one point by more than 950 points, before some buying took hold. In fact, for a time it looked as though we might have an impressive late rally. In the end, however, the buying abated and the market was left with hefty losses on the day and a bad case of the jitters. As for the specifics, the Dow would close off by 767 points; the S&P 500 would surrender 87 points; and the NASDAQ would plunge by 278 points.
Now, the bulls and bears must meet again on the field of battle, and for an early look at where things stand, we look over at Asia where overnight action saw the major indexes close in the red. In Europe, meantime, the key bourses are trading a bit higher at this hour. Also, Treasury note yields, which fell sufficiently yesterday to again raise the specter of a recession, now are edging upward. Additionally, oil prices, also off yesterday, are rising slightly now and U.S. equity futures are pointing to a rebound at the open. - Harvey S. Katz, CFA