The Dow increases 184 points because the Fed trumped the end of the ending
Michael Haddad
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Moves on. Stocks jumped on Friday at the back of a series of hop-inducing news. The US government will finally reopen – at least for the next three weeks – after a record-breaking 35-day partial closure. A Chinese delegation will arrive in Washington next Monday to begin high-level trade negotiations. The Fed may also cease to reverse its bond holdings earlier than expected and maintain a larger portfolio. In today's After Bell we see
- the conclusion of the longest government shutdown,
- wondering where the Fed can go next;
- and wondering if financial stocks can continue their current momentum for the rest of the year.
Fed in Focus
Prior to next week's Federal Open Market Committee meeting, the Wall Street Journal reported today that the Fed may stop reducing its bond holdings earlier than expected, halting the central bank's liquidation of the portfolio that began for two years since. "With interest rate hikes for now, planning the bond portfolio could be central," noted it.
Markets responded positively to the news. The Dow Jones Industrial Average increased 183.96 points, or 0.8%, to close at 24,737.20. S&P 500 rose 22.43 points, or 0.85% to 2664.76 and the Nasdaq Composite increased 91.40 points, or 1.29% to 7164.86.
Another high profile event had less impact on the market. President Donald Trump announced on Friday afternoon that the government will reopen for three weeks in a temporary agreement with the Democrats, while negotiations continue over the financing of a border wall.
The market largely pulled out of the news, with all three major indices barely moving during and after Trump's speech. Anyway, the S & P 500 has had its best government stoppage, ensuring a 10.3% gain over 35-day standoff that started in December.
When markets continue to climb, a group of former losers have done particularly well. On Friday, financial companies are the second best players in the S&P 500, an increase of 9% so far, while the broader index increased by 6.3%.
The finance sector is now also the cheapest throughout the S&P 500, trading at 11.3 times ahead earnings against the index's 15.3 times, wrote Nicholas Colas from DataTrek in a Thursday's research report. The attractive valuation has given the sector a little return, as investors flock to finances on what appears to be a good entry point.
Colas is not sure if the rally can continue, but he expects the sector to see about 5% -6% earnings growth in 2019.
Another headwind: With the new democratically-controlled House of Representatives in place now, regulation likely to be more of an obstacle than the catalyst for the financial sector. "While the Republicans still hold the Senate and the White House, the chance of further deregulation is now minimal," Colas wrote.
The Hot Stock
Western Digital
(WDC) shot to the top of the S & P 500 despite a negative financial second quarter, when the hard drive manufacturer predicted a decline in growth later in 2019.
Western Digital rose $ 3.02 or 7.5% to $ 43.16. 19659010] The company earned $ 1.45 a share of revenue of $ 4.23 billion. Analysts were looking for EPS at $ 1.50 on revenues of $ 4.26 billion. Its quarterly EPS outlook of 40 cents to 60 cents also came below the $ 1.07 consensus estimate. The startling outlook for the second half overshadowed the deficit.
Over the past 12 months, Western Digital tumbled has 51%.
The largest loser
ResMed (RMD)
fell to the bottom of the index after reporting revenue for last year.
ResMed lost $ 22.74, or 19.4% to $ 94.56.
The medical device manufacturer earned $ 1 a share of revenue of $ 651.1 million. Analysts were looking for EPS at 95 cents on revenues of $ 676.77 million. It also temporarily halted a buyback program due to recent acquisitions. The stock was hit by downgrades from
Goldman Sachs
and
JPMorgan
after the report.
In the last 12 months, ResMed has gone 7%.
– Teresa Rivas
Write to Evie Liu at evie.liu@barrons.com
