Stock Market Update

[BRIEFING.COM] The S&P 500 (+1.2%), Nasdaq Composite (+1.4%), and Dow Jones Industrial Average (+0.8%) closed at or near their best levels of the day, setting fresh record highs. Today's price action was in response to the April Consumer Price Index (CPI).

The report showed disinflation on a year-over-year basis in total CPI (to 3.4% from 3.5%) and core CPI (to 3.6% from 3.8%). This followed three consecutive hotter-than-expected CPI readings, along with some other recent reports that indicated sticky prices, which contributed to growing worries about the Fed staying restrictive for longer than anticipated.

Market rates settled sharply lower in response to the data. The 10-yr note yield settled nine basis points lower at 4.36% and the 2-yr note yield declined eight basis points to 4.74%. This price action also followed April Retail Sales data, which reflected a slowdown in consumer spending activity. 

Rate cut expectations moved up in response to the data. The fed funds futures market is pricing in a 75.3% probability of a rate cut at the September FOMC meeting, up from 65.1% yesterday, according to the CME FedWatch Tool.

Many stocks participated in broad-based gains. Four S&P 500 sectors closed more than 1.0% higher led by information technology (+2.3%) by a decent margin. The info tech sector benefitted from outsized gains in some semiconductor stocks. NVIDIA (NVDA 946.30, +32.74, +3.6%) and Broadcom (AVGO 1436.17, +56.14%) were standouts in that respect. 

Meanwhile, the consumer discretionary sector was the worst performer, settling little changed from yesterday after the retail sales data from April reflected more discernment on the part of the consumer with discretionary spending. Losses in Tesla (TSLA 173.99, -3.56, -2.0%) and Amazon.com (AMZN 185.99, -1.08, -0.6%) contributed to the sector's underperformance. 

In other news, meme stocks encountered some profit-taking activity after massive moves higher over the last few sessions. GameStop (GME 39.55, -9.20, -18.9%) and AMC Entertainment (AMC 5.48, -1.37, -20.0%) logged sharp declines today.

• S&P 500:+11.3% YTD
• Nasdaq Composite: +11.5% YTD
• S&P Midcap 400: +9.3% YTD
• Dow Jones Industrial Average: +5.9% YTD
• Russell 2000: +4.1% YTD

Reviewing today's economic data:

• Weekly MBA Mortgage Applications Index 0.5%; Prior 2.6%
• April CPI 0.3% (Briefing.com consensus 0.4%); Prior 0.4%; April Core CPI 0.3% (Briefing.com consensus 0.3%); Prior 0.4%
  • The key takeaway from the report is that there were no negative surprises. The line on consumer inflation is that it improved year-over-year, which is important if the Fed is ever going to walk the line to a rate cut; however, the disinflation in April is still only a baby step toward the Fed's 2% inflation target, which will leave the Fed stuck in a watch-and-wait mode.
• April Retail Sales 0.0% (Briefing.com consensus 0.4%); Prior was revised to 0.6% from 0.7%; April Retail Sales ex-auto 0.2% (Briefing.com consensus 0.2%); Prior was revised to 0.9% from 1.1%
  • The key takeaway from the report is that it reflects more discernment on the part of the consumer with discretionary spending activity, which is consistent with a growing body of anecdotal reports highlighting the weakening activity seen from low-income and middle-income consumers.
• May NY Fed Empire State Manufacturing -15.6 (Briefing.com consensus -9.0); Prior -14.3
• March Business Inventories -0.1% (Briefing.com consensus 0.0%); Prior was revised to 0.3% from 0.4%
• May NAHB Housing Market Index 45 (Briefing.com consensus 51); Prior 51

Thursday's economic data features:

• 8:30 ET: Weekly Initial Claims (Briefing.com consensus 218,000; prior 231,000), Continuing Claims (prior 1.785 mln), April Housing Starts (Briefing.com consensus 1.440 mln; prior 1.321 mln), Building Permits (Briefing.com consensus 1.488 mln; prior 1.458 mln), April Import/Export Prices, and May Philadelphia Fed survey (Briefing.com consensus 5.0; prior 15.5)
• 9:15 ET: April Industrial Production (Briefing.com consensus 0.2%; prior 0.4%) and Capacity Utilization (Briefing.com consensus 78.4%; prior 78.4%)
• 10:30 ET: Weekly natural gas inventories (prior +79 bcf)