Dow Jones Industrial Average: 20,453.25 (-138.61, -0.67%)
Reflects changes in 30 well-known stocks (e.g. Apple, General Electric, IBM, Exxon Mobil). Daily movements of +/- 100 points are considered to be large.
S&P 500: 2,328.95 (-15.98, -0.68%)
Reflects changes in 500 stocks that includes large companies across all sectors. Because it consists of so many diverse companies, it is considered one of the best representations of how the stock market is doing. Daily movements of +/- 10 points are considered to be large
NASDAQ: 5,805.15 (-31.01, -0.53%)
Reflects changes in an index of more than 3,000 stocks that consists mainly of technology companies. Stocks such as Google, Amazon.com, and Microsoft are traded on the NASDAQ. Daily movements of +/- 30 points are considered to be large.
Another day, another set of geopolitical concerns…
Syria, Russia, North Korea, China – now add Afghanistan to the list as on Thursday the U.S. unleashed the ‘mother of all bombs’ for the first time in the region.
Why do we care? As discussed in Coherent Finance over the past few days, uncertainty is a negative for stock markets and these continued geopolitical headlines will continue to cause nervousness. In addition, the optimism over Trump’s domestic agenda (tax reform, deregulation, and infrastructure spending) that caused such a massive stock market rally post the election will likely be tamed as the administrations’ attention and resources get shifted towards these international issues. Lower interest rates, a byproduct of these geopolitical headlines, continued today as the 10-year Treasury yield fell to fresh multi-month lows (Treasury bonds are considered ‘risk free’ so investors buy them when there is fear in the markets).
Bank earnings were released today, they looked good in the morning but not so much by the afternoon…
J.P. Morgan, Wells Fargo, and Citigroup reported quarterly earnings on Thursday morning. J.P. Morgan and Citigroup topped analyst estimates and as a result their stock prices opened higher in the morning; however, as investors had time to digest the reports further the banks reported evidence of a slowdown in loan growth which caused the financial sector to reverse and finish the day lower. The key financial exchange traded fund (ticker: XLF) finished the day lower by 1.3%.
Why do we care? Typically when companies report stronger than expected earnings, their stock prices rise. The fact that banks were down so significantly today following mostly good results is another sign of lots of nervousness in the markets. Since the election, financial stocks have risen significantly so expectations are very high for them going forward. Therefore, jittery investors found a reason to get cautious today by pointing towards signs of slower loan growth which may affect these stocks going forward. In addition, as noted above interest rates fell again today, which is a negative for banks since it reduces the rate at which they can lend money to consumers. The financial sector carries a large weight in the overall market so for the stock market to recover and get back to new highs, the financials will need to participate – therefore, it will be important to watch how these stocks trade over the coming days and weeks.
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