Stock Market Update

[BRIEFING.COM] The stock market had some pep in its step to begin the day, aided by some pleasing economic data that featured a moderation in PCE price inflation and stronger than expected consumer sentiment. It was also still buzzing with the reverberations of China's surprise stimulus moves this week.

The major indices all started on a positive footing, but some slippage in the information technology sector (-1.0%) and some mega-cap stocks masked what was an otherwise healthy showing by the broader market.

The equal-weighted S&P 500 was up as much as 0.9% and at a new record high; the Russell 2000 was up as much as 1.5%; and 10 of the 11 S&P 500 sectors were in positive territory.

The opening momentum faded, however, as the session progressed without a clear-cut news catalyst. Some ostensible causes included a Bloomberg report that Israel had launched a major airstrike on Hezbollah headquarters in Beirut, a strengthening Japanese yen against the dollar (which upset things in early August), and a general sense that the market overall was short-term overextended given the remarkable rebound it has waged since early August.

Still, the fading momentum meant simply that most stocks pulled back from higher levels, not that there was any acute weakness -- at least not at the index level. 

The sore thumb today was the information technology sector. Its underperformance was the difference in the losses registered by the Nasdaq Composite (-0.4%) and S&P 500 (-0.1%) versus the gains registered by the Dow Jones Industrial Average (+0.3%) and Russell 2000 (+0.7%). The equal-weighted S&P 500 closed 0.4% higher.

Even with today's 1.0% decline, the information technology sector ended the week 1.1% higher. In the same vein, the Philadelphia Semiconductor Index dropped 1.8% today but ended the week with a 4.3% gain.

The materials (-0.2%), consumer discretionary (-0.1%), health care (-0.04%), and consumer staples (-0.01%) posted negligible losses. The standout winners today were the energy (+2.1%) and utilities (+1.0%) sectors. The former was helped by rising energy prices, whereas the latter drafted off Treasury yields that moved lower in response to the PCE data and some geopolitical angst.

The 2-yr note yield fell six basis points to 3.56% and the 10-yr note yield declined four basis points to 3.75%. Pressured by the stronger yen, the U.S. Dollar Index slipped 0.1% to 100.43.

• Nasdaq Composite: +1.0% for the week / +20.7% YTD
• S&P 500: +0.6% for the week / +20.3% YTD
• Dow Jones Industrial Average: +0.6% for the week / +12.2% YTD
• S&P Midcap 400: +0.5% for the week / +12.1% YTD
• Russell 2000: -0.1% for the week / +9.7% YTD

Reviewing today's economic data:

• August Adv. Intl. Trade in Goods balance (actual -$94.3 bln; prior -$102.8 bln), Adv. Retail Inventories (actual 0.5%; prior 0.8%), and Adv. Wholesale Inventories (actual 0.2%; prior 0.3%).
• Personal income increased 0.2% month-over-month in August (Briefing.com consensus 0.4%) following a 0.3% increase in July. Personal spending increased 0.2% (Briefing.com consensus 0.3%) following a 0.5% increase in July. The PCE Price Index rose 0.1% month-over-month (Briefing.com consensus 0.1%) following a 0.2% increase in July. The core-PCE Price Index, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.2%) following a 0.2% increase in July. On a year-over-year basis, the PCE Price Index was up 2.2%, versus 2.5% in July, while the core-PCE Price index was up 2.7%, versus 2.6% in July.
  • The key takeaway from the report is that it shows tame inflation figures that support the Fed's progress in getting inflation back to its 2% target on a sustainable basis.
• The final reading for the September University of Michigan Index of Consumer Sentiment reached 70.1 (Briefing.com consensus 69.0) versus the preliminary reading of 69.0. The final reading for August was 67.9. In the same period a year ago, the index stood at 67.8.
  • The key takeaway from the report is that consumer sentiment picked up in September, and has been picking up as inflation pressures have moderated.