Stock Market Update

[BRIEFING.COM] The stock market finished Wednesday on a lower note after an early push to levels not seen since late February gave way to midday profit taking. The S&P 500 (-0.3%) narrowed this week's gain to 0.4% while the Nasdaq (-0.5%) underperformed, trimming its week-to-date gain to 0.4%. The Dow (unch) outperformed today after lagging earlier this week, which leaves it up 0.2% since last Friday.

Equities climbed out of the gate, emboldened by the May CPI report, which was cooler than expected at the headline (0.1%; Briefing.com consensus 0.2%) and core (0.1%; Briefing.com consensus 0.3%) levels. However, even with the positive month-over-month surprise, year-over-year CPI accelerated to 2.4% from 2.3% in April while Core CPI remained at 2.8% for the third month in a row.

The post-CPI boost overshadowed an underwhelming update from U.S. China talks, which did not result in any groundbreaking agreements. Instead, the two sides agreed to implement what was already agreed upon during a mid-May meeting in Switzerland. In other trade-related news:

• Commerce Secretary Lutnick said that the 55% tariff rate on imports from China will not change.
• U.S. Court of Appeals upheld President Trump's tariffs ahead of a full hearing that will be held this summer.
• The U.S. and India might announce an interim trade deal by the end of the month, according to Reuters.
• A trade deal between the U.S. and the European Union could be made after the July 9 deadline, according to Bloomberg.
• The U.S. is nearing a deal with Mexico to reduce steel tariffs and cap imports, according to Bloomberg.
• The U.S. and Canada have begun exchanging terms on a deal pertaining to trade and security, according to The Globe and Mail.

Seven sectors finished the day in negative territory, but only two lost more than 0.6%. The consumer discretionary sector (-1.0%) ended at the bottom of the leaderboard, weighed down by the reduced likelihood of a change to the tariff rate on imports from China, while the materials sector (-1.0%) also lagged with Nucor (NUE 117.13, -7.55, -6.1%) and Steel Dynamics (STLD 130.03, -3.78, -2.8%) falling sharply amid reports of a likely reduction to tariffs on steel imports from Mexico.

Top-weighted technology (-0.3%) outperformed in early trade before catching down to the broader market during afternoon profit taking. Apple (AAPL 198.78, -3.89, -1.9%) lagged from the start while NVIDIA (NVDA 142.83, -1.12, -0.8%) reversed from early strength.

Quantum computing stocks like Rigetti Computing (RGTI 12.52, +1.28, +11.4%) and Quantum Computing (QUBT 18.97, +3.84, +25.4%) also met some late profit taking, though they held onto the bulk of their big gains that followed comments from NVIDIA CEO Huang, who said that the quantum industry is at an inflection point.

On the upside, the energy sector (+1.5%) continued its strong week (+3.5%), and an equally impressive start to June (+5.8%) amid signs of rising tensions in the Middle East, resulting from an AP report that nonessential personnel at the U.S. Embassy in Baghdad received clearance to leave voluntarily. Crude oil soared $3.25, or 5.0%, to $68.21/bbl on the news, with some assistance from a bullish inventory report.

Treasuries finished the day on their highs with the 10-yr yield falling six basis points to 4.41% thanks to the cool May CPI.

Reviewing today's economic data:

• Total CPI was up 0.1% month-over-month in May (Briefing.com consensus 0.2%) after increasing 0.2% in April. Core CPI, which excludes food and energy, was up 0.1% month-over-month (Briefing.com consensus 0.3%) after increasing 0.2% in April. On a year-over-year basis, total CPI was up 2.4%, versus 2.3% in April. Core CPI was up 2.8% year-over-year, versus 2.8% in April.
  • The key takeaway from the report is that both headline and core CPI were lower than expected on a month-over-month basis. While these readings may not give a big boost to near-term rate cut expectations, they should also not cause the market to think that the next cut will be delayed.
• The Treasury Budget for May showed a deficit of $316.0 billion compared to a deficit of $347.1 billion in the same period a year ago. The May deficit resulted from outlays ($687.2 billion) exceeding receipts ($371.2 billion). The Treasury Budget data are not seasonally adjusted so the May deficit cannot be compared to the April surplus of $258.4 billion.
  • The key takeaway from the report is that the year-to-date deficit is still up a sizable 13.6% year-over-year, though it is down from 22.0% in April, 23.0% in March, and 38.5% in February.

Tomorrow, the market will receive May PPI (Briefing.com consensus 0.2%; prior -0.5%), Core PPI (Briefing.com consensus 0.3%: prior -0.4%), weekly Initial Claims (Briefing.com consensus 250,000; prior 247,000), and Continuing Claims (prior 1.904 mln) at 8:30 ET.

• S&P 500 +2.4% YTD
• Nasdaq Composite +1.6% YTD
• Dow Jones Industrial Average +0.8% YTD
• S&P Midcap 400 -2.2% YTD
• Russell 2000 -3.7% YTD