(Thursday Market Open) The market seems to be catching its breath after sprinting for the first two months of the year. But for how long it will stay winded remains to be seen.
With earnings season mostly in the rearview and the market perhaps having baked a dovish Fed and a trade deal with China into the proverbial cake, there hasn’t seemed to be much to push the market meaningfully higher. And in the absence of bullish news it seems that traders and investors have been booking some profits.
After three days of declines, pre-market action seemed to suggest another lackluster session for U.S. stocks.
Some positive sentiment appeared to creep in after the European Central Bank announced a new bank stimulus program aimed at boosting lending. The euro zone economy has shown signs of weakening, and political concerns such as Brexit have combined with worries over the global trade situation to create an atmosphere of uncertainty. The ECB also stood pat on interest rates.
In Brexit news, Reuters reported that European Union sources were skeptical that a transition deal that solves border issues between Ireland and Northern Ireland can be hammered out before a key summit later this month.
The worries about Europe are just part of concerns about slowing growth in the global economy, with trade policy between the United States and China the main focal point for the concerns. But there has been optimism that the world’s two largest economies can get a deal done soon.
In commodity news, U.S. and international oil prices were up more than 1% this morning amid continuing sanctions on Venezuela and Iran and as OPEC has been scaling back on production. If U.S. crude, now around $57, continues to rise, it may run into resistance around $60.
In pre-market moves this morning, grocery store chain Kroger (NYSE:KR) and Barnes & Noble (NYSE:BKS) were down sharply on their quarterly reports, with H&R Block (NYSE:HRB) starting slightly in the red for the same reason.
Sector Watch
Wednesday saw each of the major three U.S. indices fall for the third session in a row. And while the losses haven’t been too dramatic, they may seem a little jarring because of all the up days we’ve gotten used to so far this year and because volatility remains low by historical standards.
In S&P 500 sector news Wednesday, Healthcare fell the most, with a nearly 1.5% drop, while Energy’s almost 1.3% decline gave it the dubious honor of runner up to the biggest loser.
Wall Street in general doesn’t like uncertainty, and that was no exception for the Healthcare sector Wednesday as pharmaceutical and biotech stocks were rattled by the news this week of U.S. FDA Commissioner Scott Gottlieb’s surprise resignation.
Meanwhile, energy shares were decidedly unenergetic as U.S. oil prices slipped on news that weekly U.S. crude inventories increased more than expected, by 7.1 million barrels. Exxon Mobil (NYSE:XOM) also helped pull down the sector as its shares fell after the energy giant told investors to expect increased spending in coming years.
Muted Tone For A Muted Market
Beige might be an appropriately blah color for the market in general these past few days, in addition to being part of the more popular name for the Fed’s series of reports based on anecdotal accounts of business conditions in the United States.
The latest Beige Book, released Wednesday, didn’t paint a picture of an economy going gangbusters. Rather, while economic activity continued to expand in late January and February, 10 districts reported only slight-to-moderate growth while two reported flat economic conditions.
The government shutdown led to slower economic activity in some sectors in about half of the districts while “numerous manufacturing contacts”reported concerns about weakening global demand, higher costs because of tariffs, and ongoing trade policy uncertainty even though manufacturing activity was stronger overall.
So, basically the Beige Book reiterated what the market already knows—namely that the economy is still growing, but not as much as it has been in recent quarters given headwinds from the U.S.-China trade war.
In other economic data, U.S. private-sector job growth appeared to slow in February, with job figures showing 183,000 new jobs being added in the U.S., versus a revised 300,000 jobs in January. That marked the lowest number of new private sector jobs since November.
The numbers come ahead of an official government reading on the employment situation later this week, with the nonfarm payrolls report for February expected to show a gain of 173,000, according to a Briefing.com consensus estimate.
Not Flying So High: The Dow Jones Transportation Average, which includes airlines, trucking companies, and rail firms, hasn’t been doing so great lately, hitting its worst down trend since 2009. As a leading indicator, that may not bode well for the economy. (See more below.) Data Source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Going Off the Rails? The Dow Jones Industrial Average (DJI) may be one of the most famous market benchmarks of all time, but it’s not the oldest. The Dow Jones Transportation Average (DJT) was Charles Dow’s first foray into index creation, and he compiled it more than a decade before creating its now more famous brother. Initially consisting of railroad companies—unsurprising back in the heyday of rail in the late 1800s—the index now includes airlines and trucking companies in addition to rail firms and others. But the DJT is important not just for its historical significance and how it reflects the evolution of transportation. It’s also seen as a leading economic indicator that can be a bellwether for economic health. For example, if shipping companies are seeing less demand, that might mean people are shopping less. Or if airlines are struggling, it could be people are traveling less for business – like they did during the partial government shutdown, which put a crimp in air traffic. So it seems to be worth noting that the DJT has fallen for the last nine sessions in a row, its worst losing streak since February 2009. While one index can’t tell the whole story of the economy, a prolonged slump in transportation could be a worrisome sign.
Commodities, Labor, and Prices: One reason the Fed has given for being able to hit the brakes on hiking interest rates is that inflationary pressures are muted. That doesn’t mean they’re non-existent. In its latest Beige Book, the central bank said that prices continued to increase at a “modest-to-moderate pace.” The Fed said that several districts reported input prices that were growing faster than selling prices and that the ability to pass on higher costs to consumers varied by region and industry. A few districts continued to say that there was upward price pressure from tariffs on certain goods and services, but interestingly several said that the price of steel, which has been affected by tariffs, had stabilized or even fallen recently. Meanwhile, energy costs fell in some areas while agricultural commodity prices were mixed, with soybean and dairy prices notably weak. Further, the Fed said that wages for both low- and high-skilled positions across the country continued to rise, with a majority of districts reporting moderately higher wages.
Disclaimer: Charts For illustrative purposes only. Past performance does not guarantee future results.TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.