After The Close - The stock market opened higher this morning, and managed to extend these gains through the afternoon. Traders were likely feeling up beat, as the United States and China are expected to sign a trade deal this week. Further, many on Wall Street may be looking forward to the start of the fourth-quarter earnings season. At the close of trading, the Dow Jones Industrial Average was ahead 83 points; the broader S&P 500 Index was up 23 points, and the NASDAQ was higher by 95 points.
Market breadth was supportive, with winners ahead of losers by a healthy margin on the NYSE. The technology, consumer, and services stocks moved nicely higher, while the healthcare names failed to participate in today’s advance.
Meanwhile, it was a light day for economic reports. Looking ahead, the pace should pick up somewhat. Tomorrow, the Consumer Price Index (CPI) for the month of December will be released. The Producer Price Index (PPI) will follow on Wednesday, along with the latest Empire State Manufacturing report, and the Federal Reserve’s Beige Book summation.
In corporate news, not many widely-held companies posted profit reports today. However, shares of lululemon Athletica (LULU) moved up, after the yoga apparel retailer raised its guidance, following a strong holiday season. Looking ahead, the fourth-quarter earnings season is just about to commence. In fact, tomorrow we will hear from a number of large financial names, including JPMorgan Chase (JPM – Free JPMorgan Stock Report), Citigroup (C), and Wells Fargo (WFC).
Technically, stocks have held up well during the first days of 2020. Much will depend on the quality of the corporate profit reports that will be issued over the next few weeks.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The first full trading week of 2020, much like many in the previous year, went to the bulls, notwithstanding some modest selling during the week’s final session. The five-day stretch did not lack market-moving news, and the investment community handled in stride a retaliatory airstrike by Iran against the United States in response to a President Trump ordered drone strike that killed Iran’s top general Soleimani, who was responsible for many attacks against Americans and U.S. interests in the Middle East. Our sense is that investors were relieved that Iran’s strike resulted in no U.S. casualties and the Trump Administration responded with diplomatic measures and no weapons. Indeed on Friday, Secretary of State Mike Pompeo and Secretary of Treasury Steven Mnuchin announced a number of new economic sanctions against the rogue nation. For the week, the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 Index finished 0.7%, 1.8%, and 0.9% higher, respectively, with the index of 30 bellwether companies briefly topping the 29,000 mark.
On Friday, the aforementioned equity averages gave back some of the earlier-week gains after starting the session modestly higher. The market did not get much of a boost from the latest monthly data from the Department of Labor. Specifically, the report showed that nonfarm payrolls increased by 145,000 in December, and the unemployment rate stayed at 3.5%, which is more than a 50-year low. Perhaps the most important aspect to take away from the unimposing report was that it showed a minimal uptick in inflation. The benign inflationary environment puts little pressure on the Federal Reserve to tighten the monetary reins later this month, which is typically supportive for stocks. That is why the market didn’t retreat much despite the slightly weaker-than-expected jobs creation (the consensus called for 155,000 new positions in December). For the day, the Dow 30, NASDAQ Composite, and the S&P 500 Index fell 133, 25, and nine points, respectively. Investors should also note that a weak showing from Boeing (BA – Free Boeing Stock Report) stock was responsible for half the decline in the 30-stock blue-chip index. Boeing shares fell after reports surfaced showing that some of the aerospace and defense company’s employees knew of a mechanical problem for the 737 Max jet before two deadly crashes for the aircraft took place last year.
Looking ahead to the week at hand, investors will likely again see no shortage of market-moving news. In addition to the fluid geopolitical tensions between the United States and Iran, financial leaders from China will be in Washington to sign the first phase of a trade accord with the United States. The trade news may be a positive offset to any dour news coming from the Middle East. These two events, along with the start of fourth-quarter earnings season, will headline the news for Wall Street. Indeed, the reporting season officially kicks off tomorrow morning with the latest quarterly data from Dow-30 component and banking giant JPMorgan Chase (JPM –Free JPMorgan Chase Stock Report). The consensus is that the fourth-quarter earnings data will be mostly positive and possibly be supportive for stocks in the coming weeks. In addition, to the JPMorgan report, we will get data from a slew of U.S. banking giants. The reporting season doesn’t truly heat up until next week, though. Given the heavy banking data, investors may want to keep close tabs on the banking stocks, which were weaker on Friday as the employment figures suggested that the Fed would be in no rush to tighten the monetary reins by raising interest rates.
On the economic front, the week will bring reports on consumer and producer prices, industrial production, retail sales, and housing starts. Also this week, we get the latest Beige Book summation on economic conditions. Given the nature of the data, the results will be closely monitored by the central bank. In particular, the Federal Reserve leaders will be keeping close tabs on the pricing data and the retail sales figures.
With less than an hour to go before the commencement of a busy trading week on Wall Street, the equity futures are pointing to a higher opening for the U.S. stock market. So far overseas, the trading has been mostly positive. Most of the main indexes in Asia, including Japan’s Nikkei and Hong Kong’s Hang Seng, finished in the black overnight, while the major European bourses are mixed and none too far removed from the neutral line, as trading moves into the second half of the session on the Continent. Stay tuned. – William G. Ferguson