After The Close - The stock market opened higher, as sentiment increased that a trade deal with China would be completed at some point. This caused the markets to trend in an upward fashion throughout the first portion of the session. In fact, the Dow Jones Industrial Average rose by around 340 points by noon, while the S&P 500 and NASDAQ were also along for the ride. In the afternoon, the trend moved from upward to sideways, though new highs for the session were made in the course of trading. The Dow was up as many as 364 points. Still, the composites tapered off in the final portion of the session. All told, the Dow gained 207 points, the S&P 500 finished higher by 23 points, and the NASDAQ was up 87 points.
Additionally, market breath was rather positive as advancers outpaced decliners by a 3.2-to-1.0 ratio. Technology stocks were among the best performers on the day, rebounding from several days of downward trading. On the other hand, utility equities were among the weakest performers on the day. They had held up better than most over the past few days.
In commodity news, oil prices were higher today, as demand expectations rose for the fuel. Additionally, U.S. Treasury bond yields increased, as a flight from the safe-haven asset occurred. Still, it should be noted that medium-term interest rates are trading for a lower price than near-term issues, suggesting the market thinks that a rate cut is a likely outcome. The VIX Volatility Index was lower today, as demand for options protection fell.
Looking ahead, tomorrow’s slate will be full of economic data. This includes the Energy Information Administration’s weekly report on crude oil inventories, and the Empire Manufacturing Index for May. Too, retail sales for April will be released tomorrow before the market opens, which should show how the consumer is faring.
Meantime, a few key earnings reports are expected, including Dow-component Cisco Systems (CSCO – Free Cisco Stock Report). Still, any developments concerning trade with China will likely be the significant driver of market sentiment. - John E. Seibert III
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The long-feared intensification in our nation's trade war with China got under way over the weekend, when the tariff positions of both countries hardened significantly. Specifically, after suffering through a volatile and mostly lower week during the previous five-day trading span, news that our plan to raise tariffs on $200 billion in goods shipped out of China from 10%-25%, was being met by that nation's proposal to levy duties on $60 billion in U.S. goods coming into China sent stocks reeling.
And unlike last week, yesterday's sharp early reversal, which saw the Dow Jones Industrial Average tumble by more than 500 points, was not countered by dramatic buying later on in the day. In fact, things got worse before any attempt was made to rebound. All told, the Dow fell back to a session-worst setback of some 720 points in early afternoon before recovering some later in the day. The declines in the other indexes were as large or larger, as key internationally focused companies, such as Apple (AAPL – Free Apple Stock Report) and Caterpillar (CAT – Free Caterpillar Stock Report) were hammered.
As for China, it signaled that it would specifically target U.S. agricultural products, a key export from our country and one that is, obviously pivotal for U.S. farmers, and the farmers were major supporters of the President in the 2016 election. So, this appears to be a serious escalation on the part of both nations with major ramifications. In that sense, it was not all that surprising that stocks sold off sharply throughout the session yesterday. And anytime the buyers attempted to turn things around, the sellers soon gathered again.
One reason for the serious selling was that earnings season, a strong catalyst for the bulls right along has just about run its course. So, a new reason to buy has been needed. And to date nothing has surfaced to counter the trade woes. So, stocks sold off throughout most of the day. Also pushing lower were oil prices and Treasury note yields, as there was some searching for safety as stocks fell back sharply. As for equities, there was some attempt to rally as we headed into the final hour of trading.
But that attempt to turn things around would prove to be too little too late, and stocks would close the session fairly near their lows, but not quite at them. In all, the Dow would fall 617 points; the S&P 500 would slide 70 points; the NASDAQ would plummet 270 points; and the small-cap Russell 2000 would shed 50 points. Losing stocks would also overwhelm winning issues, as there were few bulls to be found as uncertainty took a front row seat and did not lighten up.
Now, after that painful session, which was the worst for the Dow and the S&P 500 Index since January 3rd, and the worst for the NASDAQ since late 2019, we see that stocks in Asia were lower in overnight trading, while in Europe, the bourses are bouncing back thus far this morning. Elsewhere, oil prices are easing further and Treasury note yields are nudging up. Finally, following what was just about the worst day for stocks this year, the equity futures now are suggesting that the market will open the day higher when trading resumes. – Harvey S. Katz, CFA