Stock Market Today: Wall Street opens mixed after US data
- Wall Street’s main indexes opened near Monday’s closing levels.
- Durable Goods Orders in the US declined sharply in January.
- Stock markets could react to US PCE inflation figures later in the week.
The Dow Jones Industrial Average (DJIA) is down 0.2% at 38,979.80, the S&P 500 (SPX) is virtually unchanged at 5,071.50 and the Nasdaq Composite (IXIC) is up 0.3% at 16,020.32 after the opening bell on Tuesday.
What to know before stock market opens
The Communication Services Sector is up more than 0.5% as the best-performing major S&P sector in the early trade. The Health Care Sector is down 0.65%.
Norwegian Cruise Line Holdings Ltd. (NCLH) and Carnival Corp. (CCL) shares are the biggest gainers early Tuesday, rising 13% and 8%, respectively. On the other hand, Hess Corp. (HES) stock is down 3.5% as the biggest decliner.
Assessing the recent action in US stock markets, “it’s an interesting week for equities as the recent run is starting to get into once in a couple of generation territory. The S&P 500 has now posted 15 weekly gains in the last 17 for the first time since 1989,” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:
“Moreover, if we get another positive week this week, then it would be 16 out of 18 weeks for the first time since 1971, and it would also be a joint record since the index’s formation. So even though there’s been lots of positive catalysts, from lower inflation to excitement about AI, it’s actually very unusual to see the sort of sustained rally that’s occurred over the last few months.”
Republic Services Inc. (RSG), Agilent Technologies Inc. (A), Extra Space Storage Inc. (EXR) and Coupang Inc. (CPNG) will release quarterly earnings after the closing bell on Tuesday.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Stock markets assess US data
The US Census Bureau announced ahead of the opening bell on Tuesday that Durable Goods Orders in the United States declined by 6.1%, or $18 billion, to $276.7 billion in January. This reading followed the 0.3% decrease recorded in December and came in worse than the market expectation for a contraction of 4.5%.
Read more: US Durable Goods Orders decline 6.1% in January vs -4.5% expected.
Other US data showed that the Housing Price Index rose 0.1% in December following the 0.4% increase recorded in January.
The US Bureau of Economic Analysis will announce the second estimate of the Gross Domestic Product (GDP) growth for the fourth quarter on Wednesday. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge of inflation, figures will be scrutinized by market participants on Thursday.
New York Fed President John Williams said on Friday that he expects the US central bank to start lowering the policy rate in the second half of the year. According to the CME FedWatch Tool, markets are nearly fully pricing in a no change in the Fed policy rate in March and see an 85% probability of another pause in May.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.