Stock Market Update

[BRIEFING.COM] The S&P 500 and Nasdaq Composite raced out to new record highs following today's open, drawing not only on the strength of the mega-cap stocks but also broad-based participation that was spurred by some market-friendly economic data.

The May Personal Income and Spending Report -- today's most important economic release -- played out in an ideal manner for a market anticipating a soft landing that is accompanied by a moderation in inflation pressures.

To that end, real disposable personal income was up 0.5%, real personal spending was up 0.3%, and the PCE Price Index was unchanged, which left it up 2.6% year-over-year versus 2.7% in April. The core-PCE Price index, which excludes food and energy, was also up 2.6% year-over-year versus 2.8% in April.

The Treasury market reacted favorably to the news, which spurred some added buying interest in the equity futures market shortly after the report. The knee-jerk reaction there ultimately faded, yet the cash market still started the session on a positive note.

At their highs of the morning, the Dow, Nasdaq, S&P 500, and Russell 2000 were up 0.7%, 1.0%, 0.7%, and 0.9%, respectively, looking past an ugly showing from Dow component Nike (NKE 75.24, -18.95, -20.1%), which greatly disappointed investors with its FY25 sales outlook.  

That report was the talk of the morning along with last night's presidential debate and concerns among Democrats following the debate about President Biden's ability to continue his run for re-election.

There is a lot of speculation about what may or may not happen, but it's fair to say that some added uncertainty has been injected into the presidential race. That uncertainty could be playing a part in the market's inability to hold on to stronger gains along with quarter-end activity.

It would be remiss not to add, however, that Treasury yields reversed sharply following the June University of Michigan Index of Consumer Sentiment at 10:00 a.m. ET that showed year-ahead and long-run inflation expectations stuck at 3.0%.

The 2-yr note yield went from 4.72% just before the Personal Income and Spending Report to 4.66% after its release before shooting back up to 4.72%. Similarly, the 10-yr note yield went from 4.30% to 4.26% and is now up to 4.35%.

The rate-sensitive utilities sector (-1.3%) has weakened in parallel fashion and is today's worst-performing sector along with consumer discretionary (-1.1%), which is being weighed down by Nike. The energy sector (+0.8%) is the best performing sector, supplanting the information technology sector (+0.3%), which had been up as much as 1.6%, in the top spot.

Reviewing today's economic data:

• Personal income increased 0.5% month-over-month in May (Briefing.com consensus 0.4%) following a 0.3% increase in April and personal spending increased 0.2% month-over-month (Briefing.com consensus 0.3%) following a downwardly revised 0.1% increase (from 0.2%) in April. The PCE Price Index was unchanged on the heels of a 0.3% increase in April, leaving it up 2.6% year-over-year versus 2.7% in April. The core-PCE Price Index, which excludes food and energy, was up 0.1% month-over-month after a 0.3% increase in April, leaving it up 2.6% year-over-year versus 2.8% in April.
  • The key takeaway from the report is that it was right on the mark with numbers supporting a soft landing and moderating inflation, which will keep alive the market's hope for a Fed rate cut before the November election.
• The final Index of Consumer Sentiment for June checked in at 68.2 (Briefing.com consensus 65.6) versus the preliminary reading of 65.6. The final reading for May was 69.1. In the same period a year ago, the index stood at 64.2. Year-ahead inflation expectations fell to 3.0% from the preliminary reading of 3.3%, versus the 2.3-3.0% range seen in the two years before the pandemic. Long-run inflation expectations came in at 3.0% versus the preliminary reading of 3.1%. They have held between 2.9% and 3.1% in 31 of the last 35 months. In the two years pre-pandemic, long-run inflation expectations were in the 2.2-2.6% range.
  • The key takeaway from the report is that consumers were generally feeling better about short- and long-run business conditions due to expectations of softening interest rates.