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The stock market continued its winning ways Monday, underpinned by some modest strength in the mega-cap stocks but energized by the continued outperformance of the small-cap stocks. The Russell 2000, after gaining 6.0% last week, increased another 1.8% in Monday's trade.
Visions of the Fed lowering its policy rate in the near future, and a presumption that an election victory by former President Trump in November would lead to market-friendly policies, spurred the positive price action that was reined in somewhat in afternoon trading.
Enthusiasm was held in check in overnight action; however, there wasn't any concerted move to initiate sell orders in the futures market.
The latter is still the case after earnings reports from UnitedHealth (UNH), Bank of America (BAC), Morgan Stanley (MS), and PNC Financial Services (PNC) exceeded consensus estimates, and June retail sales came in stronger than expected while being accompanied by upward revisions for the May report.
The S&P 500 futures are up 12 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 50 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 130 points and are trading 0.4% above fair value.
Briefly, retail sales were flat in June (Briefing.com consensus -0.1%) following an upwardly revised 0.3% increase (from 0.1%) in May, pressured by a decline in auto sales related to the CDK Global cyberattack and lower gas prices. Excluding autos and gasoline, retail sales rose 0.8% month-over-month. Excluding autos, retail sales jumped 0.4% month-over-month (Briefing.com consensus 0.2%) after an upwardly revised 0.1% increase (from -0.1%) in May.
The key takeaway from the report is that it conveyed some rather solid levels of discretionary spending on goods in June that belies any hard landing tracking for the economy.
Treasury yields moved higher in the wake of the report, which shared headline space with the Import and Export Price Indexes for June.
Import prices were flat in June following an upwardly revised 0.2% decline (from -0.4%) in May. Nonfuel import prices rose 0.2% month-over-month on the heels of a 0.3% decline in May. Import prices were up 1.6% year-over-year while nonfuel import prices were up 1.0%.
Export prices declined 0.5% month-over-month in June following a downwardly revised 0.7% decline (from -0.6%) in May. Nonagricultural export prices fell 0.6% after declining 0.8% in May. Export prices were up 0.7% year-over-year while nonagricultural export prices were up 1.4%.
The 2-yr note yield, at 4.41% before the releases, is at 4.47% now, up two basis points from yesterday's settlement. The 10-yr note yield, at 4.17% before the releases, is at 4.21% now, down two basis points from yesterday's settlement.
The equity futures market has not been upended by the turn higher in yields, choosing instead it seems to be energized by the positive economic connotations of the retail sales data that, in turn, have provided some positive connotations for the earnings outlook for the June quarter.
