Stock Market Update

[BRIEFING.COM] The stock market closed with solid losses. The S&P 500 fell nearly 80 points, or 1.3%. This decline left the index 1.5% higher since the election. 

Many stocks contributed to index losses, sinking on concerns over interest rates and speculation that the Fed may be more cautious with rate cuts than the market previously hoped. The 10-yr note yield jumped to 4.50% in response to the October Retail Sales report, which was stronger than headline numbers suggest due to upward revisions in the September data. 

Additionally, the NY Fed Empire State Manufacturing survey jumped to 31.2 in November, its highest level in nearly three years, supporting the view that the economy is not signaling a need for the Fed to rush into rate cuts. These factors align with Fed Chair Powell's comments yesterday.

The market's expectations for a rate cut at the December FOMC meeting have shifted. The fed funds futures market is pricing in a 58.4% probability of a 25-basis points rate cut at the December FOMC meeting versus 72.2% yesterday and 85.5% a month ago, according to the CME FedWatch Tool.

Treasury yields declined from their initial post-data spike, but that didn't provide any relief to equities. The 10-yr yield settled one basis point higher at 4.43% and the 2-yr yield settled one basis point higher at 4.30%.

Large-cap technology stocks, especially semiconductor-related names, suffered outsized declines compared to the broader equity market. This downturn followed fiscal Q1 guidance from Applied Materials (AMAT 168.88, -17.12, -9.2%), a leading chip equipment maker, which failed to meet the market's more optimistic expectations. 

Weakness in chipmakers and other large-cap components led the S&P 500 information technology sector to move 2.5% lower. It was the worst performing sector followed by health care (-1.9%), communication services (-1.9%), and consumer discretionary (-1.4%).

The health care sector was reacting to the news that President-elect Trump nominated Robert F. Kennedy, Jr., known as a vaccine skeptic, to lead the Department of Health and Human Services.

• Nasdaq Composite: +24.4%
• S&P 500: +23.1%
• S&P Midcap 400: +15.3%
• Dow Jones Industrial Average: +15.3%
• Russell 2000: +13.7%

Reviewing today's economic data:

• The New York Fed Empire State Manufacturing Survey for November checked in at 31.2 (Briefing.com consensus 3.3) following a -11.9 reading for October. A number above 0.0 is indicative of expansion. The New Orders Index surged to 28.0 from -10.2.
  • The key takeaway from the report is that the November reading is the highest reading in nearly three years; moreover, firms remained optimistic that conditions would continue to improve in the months ahead.
• Total retail sales increased 0.4% month-over-month in October (Briefing.com consensus 0.3%) following an upwardly revised 0.8% increase (from 0.4%) in September. Excluding autos, retail sales increased 0.1% month-over-month (Briefing.com consensus 0.2%) following an upwardly revised 1.0% increase (from 0.5%) in September.
  • The key takeaway from the report is that the upward revisions for September make the October results better than they appear since the growth is coming on top of a higher base. With month-over-month increases for nonstore retailers (+0.3%), food services and drinking places (+0.7%), electronics and appliance stores (+2.3%), and building materials and garden equipment and supplies dealers (+0.5%), it is clear that the consumer continues to embrace discretionary spending activity.
• Import prices increased 0.3% month-over-month in October and were up 0.8% year-over-year. Excluding fuel, import prices were up 0.2% month-over-month and up 2.3% year-over-year. Export prices increased 0.8% month-over-month and were down 0.1% year-over-year. Excluding agricultural products, export prices jumped 0.6% month-over-month and were flat year-over-year.
  • The key takeaway from the report is that prices picked up on a monthly basis following declines in August and September.
• Total industrial production decreased 0.3% month-over-month in October (Briefing.com consensus -0.3%) following a downwardly revised 0.5% decline (from -0.3%) in September. The capacity utilization rate fell to 77.1% (Briefing.com consensus 77.3%) from a downwardly revised 77.4% (from 77.5%) in September. Total industrial production declined 0.3% yr/yr while the capacity utilization rate was 2.6 percentage points below its long-run average.
  • The key takeaway from the report is that industrial production in October was pressured by two extraordinary factors, but even excluding those factors, it was still relatively weak in October. The Boeing strike held down total industrial production growth by an estimated 0.2 percentage point in October while Hurricane Milton and the lingering effects of Hurricane Helene reduced industrial production growth by 0.1 percentage point.
• September Business Inventories increased 0.1% month-over-month (Briefing.com consensus 0.2%) following a 0.3% increase in August.

Looking ahead, Monday's economic calendar features: November NAHB Housing Market Index (prior 43) at 10:00 ET and September Net Long-Term TIC Flows (prior $111.4 bln) at 16:00 ET.