Stock Market Update

[BRIEFING.COM] Today's session started on a delicate note, as there was some nervous tension emanating from the Treasury market following the news that the House passed the reconciliation bill early this morning in a 215-214 party-line vote.

That bill, among other things, raises the SALT deduction cap to $40,000 (from $10,000), moves up the Medicaid work requirement date to December 2026 from 2029, and increases the debt ceiling by $4 trillion. The Tax Foundation estimates that it will increase long-run GDP by 0.6% and add $3.3 trillion to deficits over the next 10 years.

There was some knee-jerk selling in the Treasury market that took the 10-yr note yield up to 4.63% and the 30-yr bond yield up to 5.15%. Those moves triggered some added weakness in the equity futures market, but they started to reverse following a jobless claims report at 8:30 a.m. ET that showed a 36,000 increase in continuing jobless claims to 1.903 million for the week ending May 10. Yields then took another turn lower after the Existing Home Sales Report for April at 10:00 a.m. ET produced the slowest annualized pace of sales for that month (4.00 mln) since 2009.

By the time the Treasury market's cash session settled at 2:00 p.m. ET, the 10-yr note yield had retraced to 4.55%, while the 30-yr bond yield backed down to 5.06%. That improvement coincided with a pickup in the U.S. Dollar Index (+0.4% to 99.91) and fostered a recovery move by the stock market, which started the session on a softer note.

The recovery in the stock market was paced by the mega-cap stocks and the growth stocks, with names like Alphabet (GOOG 171.98, +1.92, +1.1%), NVIDIA (NVDA 132.83, +1.03, +0.8%), and Snowflake (SNOW 203.18, +24.06, +13.4%), which reported earnings and a reassuring outlook, exhibiting relative strength. 

The major indices were plodding along with modest gains, but most of those gains were relinquished in a sell program that hit the market in the last 30 minutes of trading.

The consumer discretionary (+0.6%), communication services (+0.3%), and information technology (+0.1%) sectors, all of which house mega-cap constituents, were the lone sectors to end the session in positive territory. The industrials sector was flat, and the other seven sectors sported losses ranging from 0.1% (materials and financials) to 1.4% (utilities). 

• DJIA: -1.6% YTD
• S&P 500: -0.7% YTD
• Nasdaq: -2.0% YTD
• S&P 400: -4.4% YTD
• Russell 2000: -8.3% YTD

Reviewing today's economic data:

• Initial jobless claims for the week ending May 17 decreased by 2,000 to 227,000 (Briefing.com consensus 232,000), while continuing jobless claims for the week ending May 10 increased by 36,000 to 1.903 million.
  • The key takeaway from the report is that initial jobless claims are running steady at levels that are well below recession-type readings; moreover, this report covered the period in which the survey for the May employment report was conducted and should contribute to expectations that nonfarm payrolls will again show a relatively solid print.
• Preliminary May S&P Global US Manufacturing PMI (Actual 52.3; prior 50.2) and Services PMI (Actual 52.3; prior 50.8).
• Existing home sales decreased 0.5% month-over-month in April to a seasonally adjusted annual rate of 4.00 million (Briefing.com consensus 4.15 million) from an unrevised 4.02 million in March. Sales were down 2.0% from the same period a year ago.
  • The key takeaway from the report is that the median existing home price reached an April record of $414,000, putting the spotlight on affordability constraints as prices rise alongside mortgage rates.