US stocks seesawed through Thursday, with the Dow hitting a record high intraday and close, as banks and pharma stocks lapped up the perceived benefits of President-elect Donald Trump’s victory, while tech stocks sank on worries about his foreign policy initiatives.
Silicon Valley even went as far as to demand a Calexit – independence for California, Brexit-style.
The S&P 500 market bellwether closed up 0.2% at 2167, still 20 points off its all-time high struck in early September.
But the Dow Jones Industrial Average was the main star. The Dow hit a fresh high at the open at 18,873 and ended up 1.2% at 18,807 - a fresh record high close.
Gains are led by financial stocks, amid prospects that banks will benefit from looser regulations and steepening bond yield curves – with or without the reality of a rate hike next month.
Meanwhile, tech-heavy Nasdaq Composite fell 0.6% to 5221 as heavyweight Internet companies such as Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) fell on concerns that Trump’s nationalistic policies will hamper their overseas businesses, as well as worries about higher interest rates and the impact these could have as highly-leveraged business borrow to grow. Facebook shares ended down 1.9% at $120.80 while Apple lost 2.8% to $107.79. Microsoft Corp (NASDAQ:MSFT) lost 2.4% to $58.70, while Google owner Alphabet (NASDAQ:GOOGL) fell more sharply, by 3.1% to $780.29.
Already Trump received a threat from Alibaba, the world’s biggest ecommerce provider, that any attempt to derail strong relations with China will have consequences.
Leading the risers in the S&P 500 was retailer Kohl’s Corp (NYSE:KSS) up 11.5% to $50.97, while the S&P Midcap 400 was up 0.5% at 1547 and led by retailer Fossil Group (NASDAQ:FOSL) was up 11.1% at $31.19 on the coat tails of Kohl’s gains.
But just like on Wednesday, the top riser was the small-caps. The S&P 600 was up 1.9% to 762 and led by Encore Capital Grp (NASDAQ:ECPG), up 34.6% to 426.05.
The wider small-cap Russell 2000 ended up 1.6% at 1251.
Across the border, Toronto’s TSX Composite fell 0.1% to 14,744.
Early trading
US shares opened higher on Thursday, with the Dow chalking a fresh record high as markets marked out financials, healthcare and industrial stocks to be the frontline beneficiaries of President-elect Donald Trump. But then it went sour.
The Dow Jones Industrial Average was up 0.4% at 18,667 having earlier hit an intraday record high of 18,769, while the S&P 500 closed in on a fresh record high.
But after the rise at the opening by both the S&P 500 market bellwether and the Nasdaq Composite, both top tickers headed south after an hour.
The Nasdaq was last down 1.4% at 5177 while the S&P 500 lost 0.2% to 2158.
Analysts expect market volatility, rather than fresh rallies, to be the mainstay of the market over the next few months while Trump’s manifesto gets re-written onto official White House letterheaded paper. And how much of what he promised in the election campaign or indeed in his victory speech on Wednesday, becomes policy will be key to how markets take it.
The sell-off is not totally without expectation.
It should be noted that markets were already toppy ahead of the Tuesday elections, as investors prepared to celebrate a Hillary Clinton victory. So, when Trump surprised markets which then snapped higher on Wednesday, it wasn’t a long stretch to reach fresh highs.
But contrary to expectations before November 8 that a Trump presidency would spark a heavy sell-off in the equities market, stocks have actually jumped as investors have worked to digest what the divisive property developer will actually mean for corporate America.
So far, investors have pegged financials, healthcare and industrial stocks as the potential beneficiaries amid expectations of lighter regulations and a large increase in government spending to fund infrastructure projects.
Sectors that are dependent on low interest rates have had the opposite reaction as yields have surged on expectations that Trump’s fiscal push would stoke inflation.
That in turn could mean that the Fed continues to have the mandate to hike rates on Dec 14 as planned. Although it would still run the risk of being overkill until Trump’s new budget is announced when he becomes head of state next January.
For now, the stunning decline in Treasury notes continued for a second session. The yield on the 10-year Treasury note has risen by nearly 30 basis points in the past two days to 2.11%, from 1.855% on Tuesday.
But what’s most noteworthy is that interest rate-sensitive two-year T-Note yields have risen by just 10 bps in the same period, to 0.92% from 0.82% - suggesting that markets are worried less about a rate hike than they are about the Fed allowing inflation to rise from Trump’s spending boost.
Certainly, St Louis Federal Reserve chief James Bullard might be thinking along the same lines – although he still sees a hike to come in a speech he delivered earlier on Thursday.
The US economy will remain in a low interest rate environment for up to three more years, Bullard said, repeating his call that a single interest rate increase would be adequate for the foreseeable future.
Bullard did not mention the US election results or any possible effect on volatility or the economic outlook in prepared remarks at the breakfast presentation.
Among stocks faring well was retailer Kohl’s (NYSE:KSS) which led the S&P 500 risers, up 13.6% to $51.92 after announcing its third quarter results.
Another top riser was Urban Outfitters Inc (NASDAQ:URBN) up 7% to $36.83.
The biggest decliner among S&P 500 stocks was ConAgra Foods (NYSE:CAG), down 27.6% to $34.63. Conagra Brands, Inc., formerly known as ConAgra Foods, Inc., has completed the separation of its Lamb Weston business. The company's name change has also become effective.
The S&P Midcap 400 was down 0.04% at 1539 and led by Advanced Micro Devices (NASDAQ:AMD) down 7.6% to $6.41.
The S&P Smallcap 600 was bucking the trend, up 0.4% at 751 and led by Encore Capital Grp (NASDAQ:ECPG), up 26.6% to $24.50, however its news this morning was mixed.
Encore Capital Group reported third-quarter 2016 adjusted net income of 14 cents per share, which missed the Zacks Consensus Estimate by 88.2%. Also, the bottom line deteriorated 88.8% year over year due to lower revenues.
However, including one-time items, the company posted net loss of 6 cents per share - substantially narrower than the loss 52 cents in the prior-year quarter.
Pre-Open
US stocks are poised to open firmer on Thursday following a rally in European and Asian equity markets overnight and with pharma stocks leading the way, while investors dump US government bonds on prospects that President-elect Donald Trump will boost spending and widen the budget deficit.
The S&P 500 futures indicated a 0.4% advance by the market bellwether at the opening.
Controversial drug group Mylan (NASDAQ:MYL) saw its shares up 1% at $39.31 pre-market, while Pfizer (NYSE:PFE) were up 2.5% at $32.91. Allergan (NYSE:AGN) were up 3.3% at $220.00.
Despite many negative analyses from banks on a Trump victory, it appears that investors are focusing on how Trump policies could help American business interests. Increased infrastructure spending, lower corporate taxes and lighter regulations could be on the cards.
But Trump faced his first challenge even before he had assumed office. China.
Alibaba, the world’s biggest commerce group, delivered a stark warning to incoming US president Donald Trump that any upsets in China relations would be detrimental for the US and ripple across the globe.
Joe Tsai, vice chairman of Alibaba, warned that the rest of the world looked to the US for economic leadership and that any disengagement would be harmful – particularly in the case of China.
Trump has been belligerent about China during the election campaign, thrreatening a 35% import tax on goods from China to protect US jobs.
Meanwhile, the Chinese yuan hit a six-year low against the US dollar, as investors weighed what a Trump presidency could mean for trade between the world's two largest economies.
The yuan has fallen around 4.5% against the dollar so far this year after dropping a similar amount in 2015.
Historically, China has kept tight control of the yuan and limited money flows in and out of the country.
The head of the US Federal Reserve's St. Louis arm, James Bullard, is speaking at 1315 GMT. Traders will be watching to see whether he comments on Trump's victory. The St. Louis Fed is considered one of the most influential in monetary policy thinking, and certainly any hint on whether a December rate hike might still be on the cards will be closely monitored by markets.
A clutch of retailers are reporting this session.
Macy's (NYSE:M) shares shot up 3.8% to $39.90 pre-market after it reported sales and earnings that fell short of analysts' expectations, though it reaffirmed its full-year earnings per share guidance and raised its sales outlook.
Investors cheered further signs that business is stabilising at Kohl’s (NYSE:KSS).
Although a number of key metrics at the US department store operator – namely same-store sales and gross margins – came in slightly worse than expected, shares in the company jumped as much as 8% in pre-market trading on relief that the company did not cut guidance and was last up 7.2% at $45.70.
Investors also took heart from Kohl’s comments that sales trends are improving ahead of the all-important holiday shopping season.
As it moves forward with its turnaround efforts, US luxury retailer Ralph Lauren (NYSE:RL) said same-store sales and profits fell more than expected during the past quarter amid continuing efforts to reduce inventory and damp down on discounting to shore up its flagship brand.
Dillard's (NYSE:DDS) and Michael Kors (NYSE:KORS) report after the close.
Meanwhile, ConocoPhillips (NYSE:COP) shares were up 0.8% at $46.10 pre-market after the company announced plans to sell an additional $5bn-$8bn in assets, with the US oil and gas producer looking to shore up its finances as the slump in oil prices drags on into its second year.
The company said in a statement ahead of its investors’ day meeting that the asset sale will focus primarily on its North American natural gas fields. It also announced a $3bn share buyback programme – which at Wednesday’s closing price would be equivalent to about 5.3% of its market value.