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The broad market rebound effort that took root Thursday morning ultimately got uprooted in an afternoon sell-off that made for a disappointing finish for the major indices. The mega-cap stocks were perhaps the biggest disappointment (again), continuing lower as investors opted to sell into strength.
Small-cap stocks managed to outperform (again), but they were not immune to the late selling pressure. The Russell 2000 had been up as much as 2.8%, but closed the session with a 1.3% gain.
Today, everything seems to be aligned for another rebound effort.
The mega-cap stocks are on the rebound; the semiconductor stocks are on the rebound; good earnings news from the likes of 3M (MMM), Norfolk Southern (NSC), Deckers Outdoor (DECK), and Mohawk Industries (MHK) has overshadowed bad earnings news from the likes of Dexcom (DXCM); and the June Personal Income and Spending Report largely went the market's way, which means it did not upend September rate cut expectations.
Briefly, personal income increased 0.2% month-over-month in June (Briefing.com consensus 0.4%) following a downwardly revised 0.4% increase (from 0.5%) in May. Personal spending increased 0.3% month-over-month (Briefing.com consensus 0.3%).
The PCE Price Index was up 0.1% month-over-month and the core-PCE Price Index, which excludes food and energy, was up 0.2%. Both were in-line with expectations. Those increases left the PCE Price Index up 2.5% year-over-year, versus 2.6% in May, and the core-PCE Price Index up 2.6% year-over-year, unchanged from May.
The key takeaway from the report is that the price indexes didn't worsen on a year-over-year basis (i.e., move higher relative to the prior month). Consequently, they didn't give the market any reason to think the Fed will not cut rates at its September FOMC meeting considering comments from Fed officials, who knew where the May PCE price readings stood, have been teeing up that possibility.
The fed funds futures market has corroborated that thought. According to the CME FedWatch Tool, there is a 100% probability of a 25-basis points rate cut in September just like there was yesterday.
The 2-yr note yield, at 4.45% just before the release, is at 4.40% now, down four basis points from yesterday's settlement. The 10-yr note yield, at 4.25% just before the release, is at 4.22% now, down four basis points from yesterday's settlement.
Those moves have helped solidify an equity futures market that was already looking pretty solid in front of the report. Currently, the S&P 500 futures are up 38 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 176 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 222 points and are trading 0.6% above fair value.
Like any Olympian will tell you, though, it's not how you start, it's how you finish. That's where glory or disappointment awaits.
