Yesterday we wondered if the strength in the financial sector would push the broader market up or if the weakness in the information technology sector would pull the broader market down. The answer on Thursday was clear: the information technology sector pulled the broader market down.
At the moment, it looks like the relevant parties are slated to be on the same team when the market opens, yet the information technology sector might be a benchwarmer. The S&P futures are up two points and are trading 0.2% above fair value while the Nasdaq 100 futures are flat and are trading slightly below fair value.
Traders will be watching closely to see if the tech stocks get in the game or if they are ultimately designated for assignment again, which is baseball parlance for saying they've been cut from the Major League roster.
On Thursday, many tech stocks got cut down to size and pushed the S&P 500 information technology sector below its 50-day simple moving average, which is regarded as a key technical support level. That move featured some notable losses among the sector's largest components, with Apple (AAPL), Alphabet (GOOG), and Microsoft (MSFT) all closing below their 50-day simple moving averages. Facebook (FB) narrowly avoided such a move.
A buy-the-dip mentality has been an incessant mindset for years now, so it is fair to say that there will be an assumption that it will come into play again. The questions are when and from what level?
Following Thursday's 1.8% decline in the information technology sector and the Nasdaq Composite's 1.4% loss, it will be viewed as a discouraging development for the broader market if the buy-the-dip trade fails to materialize with any conviction on this last day of the second quarter, especially since Micron (MU) provided an ostensible catalyst for a rebound trade with a better than expected fiscal third quarter report and fourth quarter outlook.
On a related note, Dow component Nike (NKE) followed a similar form by topping fiscal fourth quarter expectations and issuing reassuring guidance. NKE shares are up 5.9% in pre-market trading, which will provide some aid for the Dow Jones Industrial Average when the opening bell rings.
One thing the Personal Income and Spending Report for May didn't provide was aid for the Federal Reserve's inflation outlook.
The PCE Price Index declined 0.1% month-over-month while the core PCE Price Index, which excludes food and energy, increased 0.1%, as expected. The monthly readings left the PCE Price Index up 1.4% year-over-year, versus 1.7% in April, and the core PCE Price Index up 1.4% year-over-year compared to 1.5% in April.
The key takeaway, then, is that inflation moved away from the Fed's longer-run inflation target of 2.0%, not toward it as the Fed is anticipating. That will help solidify the market's belief that the Fed doesn't have enough data-based scope to raise the fed funds rate until perhaps its December meeting at the earliest.
Whether the Fed thinks as much remains to be seen, although today's report certainly corroborates the view held by St. Louis Fed President Bullard (a non-FOMC voter) that the FOMC has been too hawkish relative to what the incoming data have shown over the last 90 days or so.
The aforementioned report also showed personal income increased 0.4% in May (Briefing.com consensus +0.3%) after a downwardly revised 0.3% increase (from 0.4%) for April . Personal spending was up 0.1%, as expected, following an unrevised 0.4% increase in April.
Real disposable personal income jumped 0.6% in May while real PCE increased a modest 0.1% and was up 2.7% year-over-year, unchanged from April. The personal savings rate as a percentage of disposable income rose to 5.5% from 5.1%.
The Chicago PMI report for June (Briefing.com consensus 57.8; prior 59.4) will be released at 9:45 a.m. ET while the final June reading for Consumer Sentiment (Briefing.com consensus 94.7; prior 94.5) will be out at 10:00 a.m. ET. These reports might catch some added attention, but once again, the stock market's behavior is apt to track in accordance with the information technology sector's behavior.