Stock Market Update

[BRIEFING.COM] The major indices closed with losses across the board. The S&P 500 dropped 0.6%, the Nasdaq Composite declined 0.6%, and the Dow Jones Industrial Average fell 0.5% while the Russell 2000 underperformed with a 1.4% loss.  

Selling was driven by normal consolidation efforts after a huge run in equities following the election. The Russell 2000 is still 3.4% higher than its close ahead of the election results.

This morning's economic data provided initial fuel for ongoing profit-taking activity. The October Producer Price Index, released at 8:30 ET, reflected rising inflation at the wholesale level while weekly jobless claims remained below recession-like levels, reflecting ongoing strength in the labor market that may translate to higher consumer spending, piling more pressure on inflation.

The data was followed by 3:00 ET remarks by Fed Chair Powell indicating that the "economy is not sending any signals that we need to be in a hurry to lower rates."

The major indices hit session lows in response to the comments and market participants recalibrated rate cut expectations. The fed funds futures market now sees a 58.9% probability of a 25 basis points rate cut at the December FOMC meeting, down from 82.5%, according to the CME FedWatch tool.  

Treasuries had a volatile response. The 10-yr yield was nearing 4.50% earlier, but settled three basis points lower than yesterday at 4.42% and the 2-yr yield settled one basis point higher at 4.29%. 

Losses were fairly broad based, leading nine of the 11 S&P 500 sectors to register declines. Three of them closed more than 1.5% lower than yesterday. 

Dow component Walt Disney (DIS 109.12, +6.40, +6.2%) went against the downside grain, jumping in response to earnings news. 

• Nasdaq Composite: +27.3%
• S&P 500: +24.7%
• S&P Midcap 400: +16.6%
• Dow Jones Industrial Average: +16.1%
• Russell 2000: +15.3%

Reviewing today's economic data:

• Weekly Initial Claims 217K (Briefing.com consensus 220K); Prior 221K, Weekly Continuing Claims 1.873 mln; Prior was revised to 1.884 mln from 1.892 mln
  • The key takeaway from the report is rooted in the low level of initial jobless claims -- a leading indicator -- which suggests employers are feeling reasonably good about the economic outlook, as they appear reluctant to layoff employees.
• October PPI 0.2% (Briefing.com consensus 0.2%); Prior was revised to 0.1% from 0.0%, October Core PPI 0.3% (Briefing.com consensus 0.3%); Prior 0.2%
  • The key takeaway from the report is that there was inflation in this report -- not disinflation -- at the wholesale level. That will stir concerns about PCE inflation sticking at higher levels and the Fed not cutting rates as much as previously envisioned.

Looking ahead, Friday's economic calendar features:

• 8:30 ET: October Retail Sales (Briefing.com consensus 0.3%; prior 0.4%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 0.5%), November Empire State Manufacturing (Briefing.com consensus 3.3; prior -11.9), October Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.1%), Export Prices (prior -0.7%), and Export Prices ex-agriculture (prior -0.9%)
• 9:15 ET: October Industrial Production (Briefing.com consensus -0.3%; prior -0.3%) and Capacity Utilization (Briefing.com consensus 77.3%; prior 77.5%)
• 10:00 ET: September Business Inventories (Briefing.com consensus 0.2%; prior 0.3%)