Stock Market Update

[BRIEFING.COM] Today's session started on an upbeat note, leading the S&P 500 and Dow Jones Industrial Average to new all-time intraday highs. Stocks faded from session highs, though, leaving the S&P 500 and DJIA near their flat lines at the close.

Market participants were digesting some relatively pleasing economic data, which supported the soft landing narrative and didn't change the market's rate cut expectations that much. Retail sales and industrial production were both stronger than expected in August, and the likelihood of a 50 basis points rate cut tomorrow sits at 63.0% from 34.0% one week ago, according to the CME FedWatch Tool.

The market's optimistic view on the economy and rate cuts contributed to an overall positive bias, and to the outperformance of small cap stocks and cyclical sectors. The Russell 2000 climbed 0.7% and the S&P 500 energy (+1.4%), industrials (+0.5%), financial (+0.5%), and consumer discretionary (+0.6%) sectors showed relative strength. 

Countercyclical sectors underperformed the index. The health care (-1.0%) and consumer staples (-0.9%) sectors were the worst performers today.

Positive price action in Microsoft (MSFT 435.15, +3.81, +0.9%) also provided some support to the broader market after news of a 10% increase to its quarterly dividend and a share buyback authorization up to $60 billion.

The 10-yr yield settled two basis points higher at 3.64% and the 2-yr yield settled three basis points higher at 3.59%. 

• S&P 500: +18.1% YTD
• Nasdaq Composite: +17.4% YTD
• Dow Jones Industrial Average: +10.4% YTD
• S&P Midcap 400: +10.4% YTD
• Russell 2000: +8.8% YTD

Reviewing today's economic data:

• August Retail Sales 0.1% (Briefing.com consensus -0.2%); Prior was revised to 1.1% from 1.0%, August Retail Sales ex-auto 0.1% (Briefing.com consensus 0.2%); Prior 0.4%
  • The key takeaway from the report is that control group sales -- the component that factors into GDP -- were up a sturdy 0.3% following an upwardly revised 0.4% increase (from 0.3%) in July and 0.9% increase in June. There is no hard landing in those numbers.
• August Industrial Production 0.8% (Briefing.com consensus 0.1%); Prior was revised to -0.9% from -0.6%, August Capacity Utilization 78.0% (Briefing.com consensus 77.9%); Prior was revised to 77.4% from 77.8%
  • The key takeaway from the report is that industrial production snapped back in August, led by manufacturing output and a near 10% increase in the index of motor vehicles and parts, after being depressed by Hurricane Beryl in July.
• July Business Inventories 0.4% (Briefing.com consensus 0.4%); Prior 0.3%
• September NAHB Housing Market Index 41 (Briefing.com consensus 41); Prior 39

Wednesday's economic lineup features:

• 7:00 ET: Weekly MBA Mortgage Applications Index
• 8:30 ET: August Housing Starts and Building Permits
• 10:30 ET: Weekly EIA Crude Oil Inventories 

The headline event tomorrow is the Fed policy decision at 2:00 ET.