Stock Market Update

[BRIEFING.COM] The major indices have been in and out of negative territory today, yet they sit at session highs moving through the New York lunch hour. They do so, bolstered by the outperformance of the mega-cap stocks and gains in the financial sector (+1.1%) following better-than-expected earnings reports from JPMorgan Chase (JPM 235.19, +8.08, +3.6%), BlackRock (BLK 878.25, +19.47, +2.3%), Wells Fargo (WFC 61.81, -1.30, -2.1%), Morgan Stanley (MS 106.92, +0.34, +0.3%), and Bank of New York Mellon (BK 77.07, +0.46, +0.6%).

The market's current disposition is impressive in light of a slate of other developments that have not been positive: 

• The dollar continues to be weak, which is being construed as a move driven by growth concerns, deficit concerns, and waning confidence/interest in U.S. assets on the part of foreign investors. The U.S. Dollar Index is down 0.6% to 100.27, but it had been down as much as 1.8% overnight to 99.01.
• China responded to the 145% tariff rate the U.S. has placed on Chinese imports with a 125% tariff rate for U.S. imports, adding that it will ignore any further tariff actions by the U.S.
• The University of Michigan Index of Consumer Sentiment for April showed a drop in sentiment to 50.8 from 57.0 in March and included a spike in year-ahead inflation expectations from 5.0% to 6.7% and long-run inflation expectations from 4.1% to 4.4%.
• The 10-yr note yield climbed as high as 4.58% in the wake of the consumer sentiment report, but it has backtracked to 4.45% (up six basis points from yesterday's settlement).

The improvement in stocks has coincided with the pullback in the 10-yr note yield, yet market participants have likely taken some solace from the fact that the market showed some decent resilience to selling interest in spite of the negative developments noted above.

The materials sector (+2.5%) is the best-performing sector, but it is the information technology sector (+2.3%), boosted by a healthy gain in Apple (AAPL 199.2, +8.60, +4.5%), that has made the biggest difference today. All 11 S&P 500 sectors, however, are in positive territory, and seven are up at least 1.2%.

Small-cap and mid-cap stocks have lagged their larger counterparts, but they have also seen a nice recovery off session lows. The Russell 2000 is up 0.2% after being down 1.6%, and the S&P Midcap 400 is up 0.3% after being down 1.8%.

The Vanguard Mega-Cap Growth ETF (MGK) is up 1.6%.

Reviewing today's economic data:

• The Producer Price Index for final demand decreased 0.4% month-over-month in March (Briefing.com consensus 0.1%) following an upwardly revised 0.1% increase (from 0.0%) in February. The Core Producer Price Index for final demand, which excludes food and energy, decreased 0.1% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.1% increase (from -0.1%) in February. On a year-over-year basis, the index for final demand was up 2.7% versus 3.2% in February, and the index for final demand, less food and energy, was up 3.3% versus 3.5% in February.
  • The key takeaway from the report is that inflation for wholesalers was suppressed in March; however, that good news is being discounted as temporary (like yesterday's CPI report was) given that tariff actions are taking root in supply chains and are expected to lead to higher prices at least in the short term.
• The preliminary April Univ. of Michigan Index of Consumer Sentiment checked in at 50.8 (Briefing.com consensus 54.8) versus the final reading of 57.0 for March. In the same period a year ago, the index stood at 77.2.
  • The key takeaway from the report is manifold: the decline in consumer sentiment is broad-based; expectations for unemployment to rise are at their highest since 2009; and inflation expectations are surging. This is a terrible mix that will foment concerns about future consumer spending strength.