The stock market finished the abbreviated pre-holiday session on a firmly higher note. A daylong upward drift helped the Dow (+0.7%), S&P 500 (+0.8%), and Nasdaq (+0.8%) settle at fresh record highs.
Today's session was not particularly active, but a heavy batch of mostly disappointing economic data provided fuel for a rally based on the assumption that a weakening economic picture will prompt the Federal Reserve to cut the fed funds rate. While the market has been emboldened by that view, it should be noted that historically speaking, the first rate cut has not been a positive event for equities going forward. On a side note, President Trump nominated Christopher Waller and Judy Shelton the Federal Reserve's Board of Governors. Mr. Waller previously served as the Executive Vice President of the Federal Reserve Bank of St. Louis while Ms. Shelton is one of the president's economic advisors.
All eleven sectors ended Wednesday in the green, but like yesterday, the advance was paced by countercyclical groups. Real estate (+1.5%), consumer staples (+1.4%), and utilities (+0.8%) jumped out to an early lead, maintaining their position until the close. Gains in these rate-sensitive sectors were supported by continued strength in Treasuries of longer tenors. The bond market will remain open until 14:00 ET, but the 10-yr yield (-2 bps to 1.95%) and the 30-yr yield (-4 bps to 2.47%) are almost certain to finish the day at fresh lows for the year.
High-beta groups had a mixed showing today. The Dow Jones Transportation Average climbed 1.0% with airlines pacing the advance after yesterday's guidance boost at Delta Air Lines (DAL 59.15, +0.61, +1.0%). United Airlines (UAL 90.67, +1.80, +2.0%) was the group's top performer.
Chipmakers underperformed once again. The PHLX Semiconductor Index lost 0.4%, trimming this week's gain to 0.8%. Broadcom (AVGO 284.89, -10.44, -3.5%) was the weakest performer, falling 3.5% after Bloomberg reported that the company is in advanced talks to acquire Symantec (SYMC 25.10, +3.00, +13.6%). The broader technology sector (+0.7%) settled just behind the broader market.
In other M&A news, Sprint (S 6.98, +0.10, +1.5%) rallied amid reports that the company's merger with T-Mobile (TMUS 75.82, +0.34, +0.5%) is likely to be approved by the Department of Justice.
Shares of Tesla (TSLA 234.90, +10.35, +4.6%) settled higher after the company reported a larger than expected number of total deliveries in Q2.
Participants received a full slate of economic data today:
- The ISM Non-Manufacturing Index dropped to 55.1% in June (Briefing.com consensus 55.8%) from 56.9% in May. The dividing line between expansion and contraction is 50.0%.
- The key takeaway from the report is that it points to a slowdown in growth in the non-manufacturing sector, which accounts for the vast majority of U.S. economic activity. The June reading marks the lowest level for the index since July 2017.
- Factory orders declined 0.7% in May (Briefing.com consensus -0.5%) after declining a downwardly revised 1.2% (from -0.8%) in April. This is the third decline in factory orders over the past four months.
- The key takeaway from the report is that orders for nondefense capital goods orders, excluding aircraft -- a proxy for business spending -- increased 0.5% versus a 0.4% increase seen in the advance durable goods orders report.
- The U.S. trade deficit widened to $55.5 billion in May (Briefing.com consensus -$54.4B) from a downwardly revised $51.2 billion (from -$50.8 billion) in April. Exports were $4.2 billion more than April exports while imports were $8.5 billion more than April imports.
- The key takeaway from the report is that the average real trade deficit in the second quarter is 2.3% greater than the first quarter average, which is a negative for the Q2 GDP growth outlook.
- Initial claims for the week ending June 29 decreased by 8,000 to 221,000 (Briefing.com consensus 222,000). Continuing claims for the week ending June 22 also decreased by 8,000 to 1.686 million.
- The key takeaway from the report is that initial claims continue to run at relatively low levels, which suggests employers remain reluctant to reduce the size of their workforce.
Bond and equity markets will be closed for Independence Day tomorrow. On Friday, June Nonfarm Payrolls (Briefing.com consensus 160,000; prior 75,000), Nonfarm Private Payrolls (Briefing.com consensus 147,000; prior 90,000), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), Unemployment Rate (Briefing.com consensus 3.6%; prior 3.6%), and Average Workweek (Briefing.com consensus 34.4; prior 34.4) will be reported at 8:30 ET
- Nasdaq Composite +23.1% YTD
- S&P 500 +19.5% YTD
- Russell 2000 +16.6% YTD
- Dow Jones Industrial Average +15.6% YTD