Stocks struggled to find direction as traders took profits in some names that bounced higher last week with growth fare. Technology names got pinched today, but Monday’s performances by the broader benchmarks were not too bad, nor where they impressive.
Monday was a lethargic day, reminiscent of many during the summer months, but the S&P 500 entered the day just 1.80% below its all-time high and growth sectors, such as consumer discretionary and technology, were about 2% removed from records, so it wasn’t surprising to see modest dips today.
When all was said and done, the Nasdaq Composite was lower by 0.19% while the S&P 500 settled down by just 0.01%. The Dow Jones Industrial Average was the standout of the day, gaining 0.14%. In late trading, 17, or just over half the Dow’s 30 members, were trading higher.
This week, barring any unexpected Twitter (NYSE:TWTR) activity from President Donald Trump, should be relatively quiet on the domestic headline front, but there are global considerations. The Organization of Petroleum Exporting Countries (OPEC) publishes its monthly demand forecasts on Wednesday, news that could move Dow components Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), two names that have recently steadied.
On Thursday, the European Central Bank (ECB) is widely expected to reveal a rate cut, a move that could spark moribund European stocks and provide a lift to other riskier assets.
Dow Dogs Have Their Day Again
With ebullience for the Dow last week, some of the blue chip index’s laggard names notched some nice gains. That group included trade-sensitive Caterpillar (NYSE:CAT). Importantly, there was follow-through as the industrial machinery maker added 3.74%, making it one of the best-performing Dow members to start the week.
Slack global manufacturing data is a legitimate concern for shares of Caterpillar, but some analysts argue that investors have gotten too gloomy on the stock and that it may be pricing in more downside than is realistic.
Caterpillar “could face another 1 to 2 quarters of negative [earnings per share] revisions due to dealer destocking in construction and weakness in upstream oil and gas,” said Bank of America Merrill Lynch analyst Ross Gilardi in a note out today. “We advise investors to look through it because global [industrial indexes] are already below 50, central banks are stimulating, and the U.S. service economy (i.e. the consumer) is still humming.”
At the end of the resurgent dog spectrum is defensive name Walgreen Boost Alliance (NASDAQ:WBA), which has easily been one of the Dow’s worst-performing components this year. Today, it was one of the best Dow stocks, posting a jaw-dropping (by its standards) gain of 5.76% on seemingly no news other than a recent decision by the company to tell shoppers to not enter its stores with firearms.
There was some chatter out today that the recent bankruptcy of smaller rival Fred’s could be beneficial to Walgreens, but a gain of this magnitude today seems to overshoot that news.
Tech Check
Tech was roughed up a bit today, but one day of weakness does not diminish the case for the largest sector in the S&P 500. Microsoft (NASDAQ:MSFT) was one of the tech names trading lower today. Over the weekend, Evercore ISI raised its price target on the stocks to $160 from $150, sparking some unusual (and bullish) option activity in the name today.
Apple (NASDAQ:AAPL) traded modestly higher ahead of its Tuesday product reveal, which is expected to include some iPhone enhancements, though not of the stock moving variety. Yes, iPhone 11 will be impactful for Apple stock at some point, but for those watching tomorrow’s event, the real near-term catalyst could be updates on Apple + streaming and other entertainment-related efforts.
Dow Jones Bottom Line
As I noted above, this week should be light on headline risk, emphasis on “should be.” Ebbing uncertainty could set the stage for more gains for stocks, albeit in incremental fashion, but there are other benefits to removing the overhang of doubt from investors’ minds.
“Eventually, erratic policy and heightened uncertainty undermine confidence in a way that affects the real economy,” notes BlackRock. “This could happen in a number of ways: a safe-haven bid that drives up the dollar and credit spreads and/or a sharp decline in business confidence that begins to impact spending and hiring plans. Should either start to occur, the risk is no longer just investor mood swings but a more pernicious slowdown and market correction. In the absence of those developments, while easy money cannot eliminate uncertainty it can mitigate the effects.”
Todd Shriber does not own any of the aforementioned securities.