Stock Market Update

[BRIEFING.COM] There was hardly any interference from sellers today, as the stock market rallied around a confluence of supportive developments. Stocks began on a high note and steadily added to their gains as the session carried on, benefiting from sidelined investors getting squeezed back into the action by a fear of missing out on further gains. The indices closed near their highs for the day. 

There were three primary catalysts behind today's advance:

1. President Trump announced that he will be delaying the implementation of his recommended 50% tariff rate for the EU until July 9 to allow more time to negotiate a deal. This decision followed a phone call with European Commission President von der Leyen, who is reportedly wanting to accelerate trade talks now.
2. Treasury yields took a welcome step back, bolstered by reports that Japan is considering reducing its issuance of ultra-long bonds. The 10-yr note yield fell eight basis points to 4.43%, cutting below the closely watched 4.50% level, and the 30-yr bond yield dropped 10 basis points to 4.94%, moving below the closely watched 5.00% level.
3. The Consumer Confidence Index for May showed a solid jump to 98.0 (Briefing.com consensus 87.0) from a downwardly revised 85.7 (from 86.0) for April, as average 12-month inflation expectations eased from 7.0% to 6.5%.

These were the primary catalysts, but the consumer discretionary (+3.0%), information technology (+2.6%), and communication services (+2.1%) sectors were the main drivers of a broad-based rally effort that included the outperformance of the mega-cap stocks and small-cap stocks.

All 11 S&P 500 sectors finished higher, but only the three sectors mentioned above had a better return than the S&P 500. The smallest gainers were the utilities (+0.8%) and energy (+0.8%) sectors.

With the tariff temperature cooling for now, efforts to hedge for downside protection were tapered. The CBOE Volatility Index fell 13.6% to 19.25.

Today's session was controlled by buyers, evidenced by an A-D line that favored advancers by a better than 6-to-1 margin at the NYSE and by a better than 2-to-1 margin at the Nasdaq.

In other developments, the Treasury market digested a $69 billion 2-yr note auction in decent shape. The high yield of 3.955% stopped through the when-issued yield of 3.965% by a basis point, albeit on slightly weaker-than-average dollar demand. The U.S. Dollar Index was up 0.5% to 99.59.

• S&P 500: +0.7% YTD
• DJIA: -0.4% YTD
• Nasdaq: -0.6% YTD
• S&P 400: -2.5% YTD
• Russell 2000: -6.3% YTD

Reviewing today's economic data:

• Total durable goods orders decreased 6.3% month-over-month in April (Briefing.com consensus -8.1%) following a downwardly revised 7.6% increase (from 9.2%) in March, with a 17.1% decline in transportation equipment orders acting as the key drag. Excluding transportation, durable goods orders rose 0.2% month-over-month (Briefing.com consensus 0.0%) following a downwardly revised 0.2% decline (from 0.0%) in March.
  • The key takeaway from the report is that there was a big dropoff in business spending, evidenced by the 1.3% decline in new orders for nondefense capital goods excluding aircraft.
• March FHFA Home Price Index -0.1% month-over-month (Briefing.com consensus 0.2%) following a downwardly revised 0.0% (from 0.1%) in February.
• March S&P Case-Shiller Home Price Index increased 4.1% yr/yr (Briefing.com consensus 4.4%) following an unrevised 4.5% increase in February.
• The Conference Board's Consumer Confidence Index jumped to 98.0 in May (Briefing.com consensus 87.0) from a downwardly revised 85.7 (from 86.0) in June, breaking a string of five consecutive months of decline.
  • The key takeaway from the report is that there was a clear connection between the increase in consumer confidence and the pause in the reciprocal tariff rates, which triggered a material rally in stock prices and improved forecasts for the economic outlook. Note: roughly half of the responses came after the May 12 news that the U.S. and China were pausing their respective reciprocal tariff rates.