Stock Market Update

[BRIEFING.COM] It was a solid day in the stock market following a pleasing CPI report for June, but the S&P 500 (-0.9%) and Nasdaq Composite (-2.0%) didn't reflect that. Total CPI deflated 0.1% month-over-month, slowing the pace of growth to 3.0% on a year-over-year basis from 3.3% in May. Core-CPI, which excludes food and energy, decelerated to 3.3% on a year-over-year basis from 3.4%.

The report sent market rates lower, reflecting optimism about the path of inflation and Fed policy. The 10-yr note yield, which is most reactive to inflation expectations, declined nine basis points to 4.19% and the 2-yr note, which is most responsive to changes in the fed fund rate, yield fell 12 basis points to 4.51%. 

The fed funds futures market is pricing in a 92.7% probability of a rate cut at the June FOMC meeting, up from 73.4% yesterday. 

Many stocks participated in a broad rally today, except mega caps and semiconductor stocks. Money was rotating away from these areas of the market due to profit taking activity after a big run of late. The Vanguard Mega Cap Growth ETF (MGK) logged a 2.3% decline and the PHLX Semiconductor Index (SOX) declined 3.5%.

This price action weighed on the S&P 500 and Nasdaq Composite while the Russell 2000 surged 3.6% and the S&P Mid Cap 400 logged a 2.5% gain. The equal-weighted S&P 500 registered a 1.2% gain. 

Tesla (TSLA 241.03, -22.23, -8.4%) was an influential laggard from the mega cap space on news that it's delaying its robotaxi plans until October, according to Bloomberg. The stock had been trading nearly 3% higher at its best level of the day.

Meanwhile, rate-sensitive areas of the market benefitted from the drop in rates. The S&P 500 real estate sector was a standout in that respect, jumping 2.7%. Homebuilder stocks also surged in response to the movement in market rates. The SPDR S&P Homebuilder ETF (XHB) logged a 5.9% gain. 

• Nasdaq Composite: +21.8% YTD
• S&P 500: +17.1% YTD
• Dow Jones Industrial Average: +5.5% YTD
• S&P Midcap 400: +7.7% YTD
• Russell 2000: +4.9% YTD

Reviewing today's economic data:

• Weekly Initial Claims 222K (Briefing.com consensus 234K); Prior was revised to 239K from 238K; Weekly Continuing Claims 1.852 mln; Prior was revised to 1.856 mln from 1.858 mln
  • The key takeaway from the report is that initial claims continued backtracking from a high that was reached in June, suggesting that the labor market is holding up well despite restrictive policy from the Fed.
• June CPI -0.1% (Briefing.com consensus 0.1%); Prior 0.0%; June Core CPI 0.1% (Briefing.com consensus 0.2%); Prior 0.2%
  • The key takeaway from the report is that the market heard exactly what it hoped for, as CPI deflated slightly in June, contributing to additional disinflation on a year-over-year basis. The 3.0% year-over-year growth rate matched the low from 2023, which will be seen as supportive of a case for a rate cut from the FOMC.

Market participants will receive the following economic data on Friday: 

• 8:30 ET: June PPI (Briefing.com consensus 0.1%; prior -0.2%) and Core PPI (Briefing.com consensus 0.1%; prior 0.0%)
• 10:00 ET: Preliminary July University of Michigan Consumer Sentiment (Briefing.com consensus 67.5; prior 68.2)