Market Overview

Wall Street Gains Some Optimism on Report that China Plans to Buy More U.S. Ag Goods

Wall Street Gains Some Optimism on Report that China Plans to Buy More U.S. Ag Goods

(Friday Market Open) Trade news seems to have cheered the market even as worries about a coronavirus resurgence remain in the background.

A report from Bloomberg News that China plans to accelerate purchases of U.S. agricultural products to come in line with the phase one trade deal signed in January appears to have given a shot of optimism to the market a day after a lackluster performance.

Today is light on economic reports, but there are several Federal Reserve speakers scheduled. Boston Fed President Eric Rosengren is scheduled to speak at 10:15 AM ET; Fed Vice Chair Randal Quarles is scheduled for noon ET, and Fed Chair Jerome Powell and Cleveland Fed President Loretta Mester are scheduled for a discussion starting at 1 p.m. ET.

Also, investors may want to keep in mind that today is "quadruple witching day" when contracts for stock index futures and options, as well as single-stock futures and stock options all, expire. Quadruple witching occurs on the third Friday of March, June, September, and December, and can lead to heightened volatility at the open or close.

Oil futures are having another up day after a meeting of a committee of OPEC and its allies discussed compliance with previously announced supply cuts.

It remains to be seen if crude can settle above $40 and hold on to that level. Although there is some optimism about demand as the global economy starts reopening, there is still limited demand from airlines and cruise ships. A potential positive, however, could be a summer driving season that may be heavier than normal if people choose to drive for vacations—either going on road trips or making day trips while staying at home for the night—to maintain social distance.

Lackluster Thursday
On Thursday, stocks were pretty lackluster. All three of the main U.S. indices spent some of the days above and below flatline. The Dow Jones Industrial Average (INDEXDJX: .DJI) ended slightly lower while the S&P 500 Index (INDEXSP: .INX) and the Nasdaq Composite (INDEXNASDAQ: .IXIC) eked out gains. That's five consecutive up days for the COMP.

It seems that bullish traders and investors haven't found a catalyst to move the market meaningfully higher while pockets of coronavirus re-emergence aren't quite enough for bearish market participants to continue winning the day as they have in the recent past.

Mixed economic data didn't help provide too much direction for the market. Initial claims for unemployment came in higher than expected (see more below) but a measure of manufacturing in the Philadelphia area posted a positive number when a negative one had been expected. Also, leading indicators from the Conference Board came in better than forecast (see more below).

A look at sectors showed a mix of gains and losses. Real Estate was the worst performer, dipping 1.34% while Energy was the best performer of the day, gaining 1.19%.

A Look Ahead
Next week is relatively light on earnings reports. But investors may want to pay attention when Nike (NYSE: NKE) opens its books after the close on Thursday.

The athletic footwear and apparel manufacturer can be a good check on the state of consumers because its products aren't must-have staples. People tend to buy more apparel that they don't have to have when the economy is doing better. And it could be interesting to see how sales of running shoes have been doing. A jog is an activity that cooped-up people can use as an escape and still socially distance without going to a gym.

Also, a big chunk of NKE's sales are in China, so the company's results can potentially be a good check on the health of the Asian nation's economy.

In other corporate news, Apple's (NASDAQ: AAPL) developer conference is next week. Investors may want to watch for new product launches that could move the needle for the stock.

On the economic news front, investors can expect reports on domestic existing and new home sales, durable goods orders, inflation, and gross domestic product. Of course, weekly jobless claims data is also due and will probably continue to be more heavily watched than it was in pre-coronavirus days. With many states giving the green light for bars and restaurants to open, one thing to watch for is how that'll impact initial jobless claims.

CHART OF THE DAY: Crude oil prices (candlestick) haven't settled above $40 a barrel since early March, as the global COVID-19 pandemic has greatly slowed the global economy and put the demand for black gold on ice. But as the global economy has been reopening, crude prices have rebounded above that level on an intraday basis recently. They've since pulled back but looked like they could retest the $40 mark. The Energy sector (IXE—purple line) tends to trade in a similar fashion to oil prices. Data sources: S&P Dow Jones Indices, CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

A Bounce From a Low Place: The Conference Board's Leading Economic Index came in above expectations yesterday and showed the first gain since January. While it's a good sign, it's still very much in the green-shoots category. Thursday's 2.8% gain, which beat a consensus expectation of 2.5%, came after large coronavirus led losses in March and April, when the index dropped 7.5% and 6.1%, respectively. Most of the gain in May came from the relative improvement in unemployment insurance claims, with improvements in labor markets, housing permits, and stock prices also helping, the Conference Board said. But new manufacturing orders, consumers' economic outlook, and the Leading Credit Index still point to weak economic conditions. "The breadth and depth of the decline in the LEI between February and April suggest the economy at large will remain in recession territory in the near term," Ataman Ozyildirim, senior director of economic research at the Conference Board, said in a press release announcing the May data.

Drilling Down Into Jobless Claims Numbers: Even though initial claims for unemployment insurance came in higher than expected yesterday, they continued their declining trend. The latest figure of 1.508 million eclipsed a consensus expectation of 1.35 million. But the new number was down from a downwardly revised 1.542 million from the previous week and 2.446 million from roughly a month prior. Perhaps more importantly, the four-week moving average also showed a similar trend of declining. That average stood at 1.774 million in the week ended June 13, well below the 3.044 million roughly a month prior. Still, we're obviously not out of the woods yet, as the latest data on continuing claims, from the week ended June 6, remained above 20 million.

Earning From Yield or Capital Appreciation: Investors tend to go through phases where they search for yield and times when they look for capital appreciation. When Treasury yields are low, like they are now, investors often turn to companies with a history of paying steady dividends, such as utilities. But through Wednesday's close, the SPX Utilities Sector was down 2.52% over a one-year time frame. That's not the worst performer, but it's also a far cry from the 35.14% gain in Information Technology. In recent weeks, as the stock market has gained a lot of ground from its coronavirus-led low it seems that investors are more focused on earning money through capital appreciation by buying stocks whose share price they think will rise. That seems to be a sign of increasing risk appetite. It also may be a reaction to some companies cutting or suspending their dividends because of coronavirus uncertainty. Still, it's arguable that investors shouldn't completely discount steady growth stocks with solid dividend histories. Those companies can remain steady stocks that might still form a solid portion of investors' portfolios that they don't trade as much as other names.
TD Ameritrade® commentary for educational purposes only. Member SIPC.


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