Battered Dow Heavyweights Come Out Swinging, Close Higher

Beaten-down industrial stocks got off the ropes today and pushed the Dow Jones Industrial Average into positive territory, as investors focused on upbeat economic data. But it was a nail-biting bout. The main indices closed mix. 

Today’s volatility in the stock market reminded me of Ronald Reagan’s famous admonition to Jimmy Carter during their 1980 presidential debate: “There you go again.” In a pattern that has become all too familiar, stocks on Thursday started strong and then pared gains as the day wore on.

At the opening bell, the main indices jumped higher. But stocks faded in the late afternoon, when news broke that Special Counsel Robert Mueller had subpoenaed the Trump Organization to turn over documents related to Russia. Mueller is looking for evidence of money-laundering, a serious criminal offense. Wall Street hates political uncertainty, of which there has been plenty.

The Dow managed to stay in positive territory, snapping a three-day losing streak. The Dow was up by 295 points at its session high. The S&P 500 and Nasdaq both fell. The S&P 500 today closed in the red for the fourth consecutive session.

Investors at first were cheered by a report released Thursday morning by the U.S. Department of Labor. The government said initial U.S. jobless claims declined by 4,000 to 226,000 in the seven days ended March 10 (see chart).

The consensus estimate was that claims would total 228,000. The decline in the rate of layoffs represented a 50-year low. The monthly average of claims dropped by 750 to 221,500.

Layoffs in the U.S. have been falling for decades; they’re now at the lowest levels since Richard Nixon was in the White House.

Thursday’s employment report was encouraging. Despite the stock market’s gyrations, the U.S economy continues to show underlying strength.

The unemployment rate sits at 4.1%, a 17-year low. The Federal Reserve considers the country at or near full employment, which is a benefit for workers but a challenge for employers looking for the right people. A tight labor market results in wage growth, which in turn fuels inflation.

Other government data released Thursday showed a rise in the prices of imported goods in February amid weakness in the U.S. dollar. These price pressures, combined with a tightening labor market, suggest that the Fed will raise interest rates next week to keep inflation in check.

Investors will closely watch three key economic reports scheduled for release on Friday: Housing Starts, Industrial Production, and Consumer Sentiment.

It ain’t necessarily so…

The biggest threat right now to the economy isn’t the Mueller probe. It’s protectionism.

I’m a passionate devotee of jazz music. One of my favorite jazz tunes is “It Ain’t Necessarily So,” from the 1935 Gershwin opera Porgy and Bess. It’s sung by the character Sportin’ Life, who expresses his doubts about several beliefs that most people assume to be true.

The song’s title has frequently popped into my head lately, as I listen to the pseudo-economists on CNBC defend tariffs. (If you ever want bad financial advice, just turn on your TV.)

Protectionists argue that steel and aluminum tariffs will mean less unemployment in the U.S. It ain’t necessarily so.

Tariffs won’t result in new steel and aluminum plants that weren’t needed before. The main culprit for falling employment in these industries isn’t cheaper imports — it’s advanced technology that makes human workers superfluous.

Protectionists argue that steel and aluminum imports hollow out our manufacturing base. It ain’t necessarily so. More blue-collar jobs rely on using steel and aluminum than on making those metals.

In addition to the news about Mueller, lingering trade fears kept Thursday’s stock market gains in check. President Trump tweeted today: “We do have a Trade Deficit with Canada.” Um, no. We have a trade surplus with our northern neighbor. The administration’s hawkish and sometimes confusing trade stance continues to make investors nervous.

The White House this week has been pressing China to cut its trade surplus with the U.S. by $100 billion. This move comes in addition to the steel and aluminum tariffs implemented last week by Trump.

The U.S. had a record $375 billion trade deficit with China in 2017. Whether trade deficits really matter is open for debate. But the Trump administration is determined to take China to task. A global trade war appears imminent. Hence the prolonged slump among industrial stocks. Conversely, shares of metals producers have risen.

Industrial stocks rebounded Thursday, but expect more volatility ahead. The correction we saw in February ain’t necessarily over.

Thursday Market Wrap

  • DJIA: +0.47% or +115.54 points to close at 24,873.66
  • S&P 500: -0.08% or -2.15 points to close at 2,747.33
  • Nasdaq: -0.20% or -15.07 points to close at 7,481.74

Thursday’s Big Gainers

  • Arcus Biosciences (NYSE: RCUS) +13.87%

Biotech launches successful IPO.

  • 3D Systems (NYSE: DDD) +5.76%

Tech firm beats on earnings.

  • Dollar General (NYSE: DG) +4.71%

Retailer’s sales come in strong.

Thursday’s Big Decliners

  • J.Jill (NYSE: JILL) -35.44%

CEO of women’s apparel retailer set to retire.

  • WideOpenWest (NYSE: WOW) -23.31%

Cable operator’s revenue slips.

  • Smart & Final Stores (NYSE: SFS) -18.15%

Food retailer’s operating results disappoint.

Letters to the Editor

“Should I invest in Russia through an ETF? Oil and gas prices have been rising, which should be a boon for this energy producing country.” — Bill H.

Risk-averse investors should stay away. Russian President Vladimir Putin is facing a backlash from the Western powers he has tried so hard to divide.

In a joint statement issued today, U.S., U.K., French, and German leaders said they believe Russia was responsible for the nerve agent attack against an ex-spy and his daughter. Britain this week expelled 23 Russia spies, in retaliation for the poisoning incident that was committed on U.K. soil. Sanctions against Russia are likely.

From a longer-term perspective, Putin never undertook the difficult task of diversifying the Russian economy. The country remains a petro-state that’s overly reliant on the fickle fortunes of the energy patch.

Robert Mueller’s subpoenas today are a reminder that Putin’s interference in American affairs will likely come back to haunt not only him but also his country’s economy. There are safer places to put your investment money.

Questions about international investing? Shoot me an email:

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.