Closing Stock Market SummaryThe S&P 500 increased as much as 0.6% on Wednesday, as continued optimism that U.S.-China trade talks were progressing favorably underpinned another broad-based rally. The benchmark index, however, fell off morning highs and spent a good portion of the day trying to get back to its best levels. It nearly did, but a wave of selling activity in the final 30 minutes knocked it back again. The S&P 500 ended the session up 0.3%.
The Dow Jones Industrial Average (+0.5%), the Nasdaq Composite (+0.1%), and the Russell 2000 (+0.3%) also had similar price action.
Early optimism was buoyed by reports that China President Xi will meet with the U.S. delegation in Beijing to discuss trade issues on Friday. Some of the early buying interest faded, though, after news hit that Senator Marco Rubio (R-FL) plans to file a bill that would make expensing permanent and tax corporate buybacks the same way as dividends.
If that bill ultimately came to pass, it could potentially lead to lower share buyback activity that leads to lower EPS growth. It was an implication that served to take a little steam out of the market.
Nevertheless, nine of the 11 S&P 500 sectors finished higher with energy (+1.3%), industrials (+0.6%), and consumer discretionary (+0.6%) leading the advance. Conversely, the utilities (-0.3%) and the communication services (-0.1%) sectors were the lone groups to finish with a loss.
While gains were largely broad-based, the communication services sector was home to some of the biggest movers in the S&P 500 following some earnings reports.
Activision Blizzard (ATVI 44.57, +2.90) rose 7.0%, recouping a good chunk of its losses from last week despite mixed Q4 results and cautious guidance for FY19. On the downside, TripAdvisor (TRIP 56.94, -3.45) and Dish Network (DISH 28.86, -2.40) fell 5.7% and 7.7%, respectively, after the companies missed earnings expectations.
Separately, Dow component Johnson & Johnson (JNJ 134.45, +0.29, +0.2%) announced plans to acquire robotics company Auris Health for approximately $3.4 billion.
U.S. Treasuries finished on a lower note, pushing yields higher across the curve. The 2-yr yield increased three basis points to 2.53%, and the 10-yr yield increased two basis points to 2.71%. The U.S. Dollar Index rose 0.5% to 97.17. WTI crude increased 1.3% to $53.80/bbl.
Reviewing today's economic data, which included the Consumer Price Index for January, the Treasury Budget for December, and the weekly MBA Mortgage Applications Index:
- Total CPI was unchanged (consensus +0.1%) while core CPI, which excludes food and energy, was up 0.2%, as expected. On a year-over-year basis, total CPI was up 1.6%, which is the smallest increase since June 2017. Core CPI was up 2.2%, which was the same increase as the 12-month periods ending in November and December.
- The key takeaway from the report is that core CPI is stable above the Fed's longer-run target. That could give it some leeway to remain patient for the time being, but at the same time, if the stock market keeps rallying and economic data improve, it could be a basis to consider raising rates again.
- The Treasury Budget for December showed a deficit of $13.5 billion versus a deficit of $23.2 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the December deficit cannot be compared to the $204.9 billion deficit for November.
- The fiscal year-to-date deficit is $318.9 billion versus a deficit of $224.9 billion for the same period a year ago. The budget deficit over the last 12 months is $873.0 billion.
- The weekly MBA Mortgage Applications Index decreased 3.7% following a 2.5% decline in the prior week.
Looking ahead, investors will receive Retail Sales for December, the Producer Price Index for January, the weekly Initial and Continuing Claims report, and Business Inventories for November on Thursday.
- Russell 2000 +14.4% YTD
- Nasdaq Composite +11.8% YTD
- S&P 500 +9.8% YTD
- Dow Jones Industrial Average +9.5% YTD
Barclays CEO Jes Staley is poaching talent from Jamie Dimon again.
Staley has hired Fater Belbachir, one of JPMorgan’s global heads in stock trading, two people familiar with the move told The Post.
Belbachir, who declined to comment when reached on Wednesday, will report to Tim Throsby, another JPMorgan alum who is the head of investment banking at Barclays, the sources said.
The move comes after the Justice Department reportedly probed a one-year “no-poach” agreement between the banks in 2016, which was supposed to keep Barclays away from key JPMorgan employees in the corporate and investment bank. The DOJ took no action on the matter.
Belbachir, who was the head of equity volatility trading in London, will take on a global trading head role at the bank, according to the sources.
Staley worked for JPMorgan for more than 30 years and rose to the CEO of its investment bank. He left JPMorgan in 2013 for hedge fund BlueMountain Capital before getting tapped as Barclays CEO in 2015.
Representatives for JPMorgan and Barclays declined to comment.
City watchdog warns Brexit could spark rise in market manipulation
Banks and funds told to be mindful of employees with access to inside information
Brexit could prompt an increase in market manipulation as surveillance becomes patchier in the wake of the City of London shifting business to the EU, the UK’s financial regulator has cautioned.
In one of its sternest warnings to date to the industry on insider trading, the Financial Conduct Authority told banks and investment funds to be far more sceptical of all employees who access confidential information, from the very top — where bosses privy to inside information mingle with senior investors and journalists — down to cleaning staff.
Brexit presents its own threat to the cleanliness of the market because City firms have had to move operations to the EU in a bid to retain access to the bloc, Julia Hoggett, the FCA’s director of market oversight said on Wednesday. Firms have had to set up EU hubs because Brexit means the loss of their so-called passporting, allowing firms to be based in one country and sell services seamlessly across the EU without the need for separate regulatory permission or ringfenced capital.
“Whilst activity may move, it is extremely important that the quality of controls remains robust,” Ms Hoggett said. “Firms must not have gaps in their oversight, and equally, must remain confident that they can still see the big picture of the behaviours they are facilitating — even across multiple borders.”
Her comments come 44 days before the UK is due to exit the EU. The FCA and its sister regulator, the Prudential Regulation Authority, have been quietly signing co-operation deals with watchdogs across the bloc so that they can still share information in the event of a no-deal Brexit.
Ms Hoggett’s speech detailed new concerns of the FCA around how markets could be manipulated by traders, including “following” — the opposite of front-running — where traders follow what they think will be profitable but suspicious client trades. She also highlighted the risks presented by cyber attacks to hack for confidential information, and also from algorithmic and high-frequency trading.
“The FCA cannot prosecute a computer, but we can seek to prosecute the people who provided the governance over that computer,” she said.