Trading volume was light on Thursday and that matched the nature of the day's gains. The major indices advanced between 0.1% and 0.2% thanks primarily to the relative strength of the financial and information technology sectors.
Those leadership groups are certain to be in focus again today, the financial sector perhaps more so than the information technology sector, but only because J.P Morgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) have reported their second quarter results.
The Cliffs Notes version of things is that they all exceeded consensus earnings estimates and reported an uptick in loan growth. Nevertheless, each stock is trading lower in pre-market action, not so much because the reports were bad, but primarily because they weren't good enough to elicit a breakout response following a big run by the stocks ahead of their reports. To wit, JPM, C, and WFC have increased 13%, 11%, and 9%, respectively, since the end of May versus a 1.5% gain for the S&P 500.
The weakness in these stocks is apt to weigh on the financial sector, which in turn is apt to weigh on the broader market.
Whether today's economic data weighs on the broader market remains to be seen. It wasn't so great economically-speaking, yet that simply means that it was supportive from a monetary policy standpoint. To that end, neither the Consumer Price Index (CPI) nor the retail sales data for June are expected to hasten any rate hike from the Fed.
The CPI was unchanged in June, as expected by the Briefing.com consensus estimate, while core CPI, which excludes food and energy, was up 0.1% (Briefing.com consensus +0.2%). Those monthly readings left CPI up 1.6% year-over-year, versus up 1.9% in May, and core CPI up 1.7% year-over-year, which was unchanged from the 12-month period ending in May.
The all items index was held down by a decline in all the major energy indexes, including a 2.8% drop in the gasoline index. The food index was unchanged. Core CPI rose for the third straight month, bolstered predominately by a 0.2% increase in the shelter index that offset declines in the indexes for apparel and both new and used vehicles.
The key takeaway from this report is that the trend of disinflation for the Consumer Price Index, which began in March, remained intact and will force the Fed to take more time to determine if it ultimately flows through and undercuts the stable trend in core CPI.
Retail sales for June were on the soft side; actually, they were weak.
Total retail sales declined 0.2% (Briefing.com consensus +0.1%) on the back of an upwardly revised 0.1% decline (from -0.3%) for May while sales, excluding autos, fell 0.2% (Briefing.com consensus +0.2%) after an unrevised 0.3% decline for May.
A 1.3% drop in gasoline station sales was the main drag on total retail sales along with a 0.6% decline in sales at food services and drinking places and a 0.4% decline in sales at food and beverage stores. Building material, garden equipment and supplies dealers (+0.5%), general merchandise stores (+0.4%), and nonstore retailers (+0.4%) were among the pockets of retail sales strength in June.
Core retail sales, which exclude auto, gasoline station, building materials, and food services and drinking places sales, declined 0.1%. This is the component that factors into the PCE goods component of the GDP report, so the key takeaway from the retail sales data is that it points to weak spending on consumer goods in June and will be a negative input for Q2 GDP models.
Today's economic calendar will also feature the Industrial Production report for June (Briefing.com consensus +0.4%; prior 0.0%), the Business Inventories report for May (Briefing.com consensus +0.3%; prior -0.2%), and the preliminary reading for the university of Michigan Consumer Sentiment report for July (Briefing.com consensus 95.1; prior 95.1).
On the heels of the CPI and retail sales data, though, the Treasury market has gone into rally mode. The yield on the 10-yr note has dropped six basis points to 2.29% while the yield on the 2-yr note has dropped four basis points to 1.32%.
That will be described as a "curve flattener" trade. That isn't necessarily good for the banks, but low long-term rates have been good for the stock market and growth stocks in particular.
Not surprisingly, the S&P futures are up three points and are trading 0.1% above fair value while the Nasdaq 100 futures are up 27 points and are trading 0.5% above fair value following this morning's otherwise weak economic data.