Stock Market Update

[BRIEFING.COM] The major averages are back near their worst levels of the session after a brief rise off their opening lows. The S&P 500 is down 0.5%, slightly outpacing the Nasdaq (-0.7%), while the Dow (-0.3%) outperforms.

The Tuesday session started with renewed geopolitical concerns about a potential broadening of the Israel-Iran conflict after President Trump called for a national security council meeting in the Situation Room and called on residents of Tehran to evacuate their city. Not long ago, Axios reported that President Trump is giving serious consideration to launching a U.S. airstrike on Iranian nuclear facilities.

Investor sentiment has also been weighed down by soft economic data, headlined by a disappointing Retail Sales report (-0.9%; Briefing.com consensus -0.6%) and below-consensus Industrial Production (-0.2%; Briefing.com consensus 0.1%) for May.

Ten sectors hold midday losses with health care (-0.9%), the consumer discretionary sector (-0.9%), and utilities (-0.6%) showing relative weakness.

Health care has been pressured by a poor showing from drugmakers after Bloomberg reported that the White House is looking into stricter disclosure rules and tighter regulations surrounding pharmaceutical advertisements. Separately, the Senate Finance Committee proposed larger cuts to Medicaid spending than what was offered by the House. Top health care component Eli Lilly (LLY 796.43, -11.15, -1.4%) is among the laggards after announcing a $1 billion acquisition of Verve Therapeutics (VERV 11.20, +4.93, +78.6%).

In the consumer discretionary sector, top component Tesla (TSLA 319.20, -9.93, -3.0%) is contributing to the underperformance while retail stocks are holding up relatively well in the face of today's disappointing Retail Sales report for May. The SPDR S&P Retail ETF (XRT 76.96, -0.10, -0.1%) fell toward yesterday's low in early action, but now holds a slim gain.

On the earnings front, Lennar (LEN 106.54, -2.95, -2.7%) surrendered its opening gain after management issued disappointing Q3 guidance during a conference call. The weak guidance follows yesterday's release of a Q2 EPS miss on above-consensus revenue.

Elsewhere, Jabil (JBL 201.76, +20.94, +11.7%) has soared to a fresh record high after beating Q3 expectations and issuing strong guidance for Q4. The strong results gave a brief boost to chipmakers, but the PHLX Semiconductor Index (-0.3%) is now in the red after being up nearly 1.0% in the early going.

Unlike chipmakers, the energy sector (+1.4%) has held onto its early gain, thanks to a jump in the price of oil (+2.6% to $72.04/bbl), resulting from renewed geopolitical concerns. The same concerns have also given a boost to defense contractors. The iShares U.S. Aerospace & Defense ETF (ITA 180.52, +1.30, +0.7%) has reclaimed yesterday's loss, contributing to some outperformance in the industrials sector (-0.2%).

Treasuries have spent the entire session in positive territory, returning toward their early highs in recent trade. The 10-yr yield is down five basis points at 4.40% with its 50-day moving average (4.39%) looming below.

Reviewing today's economic data:

• Retail sales declined 0.9% month-over-month in May (Briefing.com consensus -0.6%) following a downwardly revised 0.1% decline (from 0.1%) in April. Excluding autos, retail sales fell 0.3% month-over-month (Briefing.com consensus 0.1%) following a downwardly revised unchanged reading (from 0.1%) in April.
  • This was not a good report in terms of hard economic data. It reflected a more cautious-minded consumer, who, in general, pulled back spending on goods. Clothing and accessories store sales (+0.8%) were a surprising outlier, but otherwise, there was a retrenchment in spending in many discretionary categories, including electronics and appliance store sales (-0.6%) and food services and drinking places (-0.9%). This report will help support arguments that the Fed should be cutting rates soon.
• Industrial production fell 0.2% month-over-month in May (Briefing.com consensus 0.1%) following an upwardly revised 0.1% increase (from 0.0%) in April. The capacity utilization rate was 77.4% (Briefing.com consensus 77.7), down from an unrevised 77.7% in April. Total industrial production increased 0.6% yr/yr while the capacity utilization rate was 2.2 percentage points below its long-run average.
  • The key takeaway from the report is that manufacturing output was little changed in May despite the announcement in early April that the reciprocal tariffs would be paused. The tepid activity is consistent with slower economic growth in its own right and likely also reflects the planning uncertainty that goes hand-in-hand with the tariff uncertainty.
• Import prices were unchanged in May after increasing 0.1% in April, while import prices, excluding oil, increased 0.3% after increasing 0.4% in April. Export prices fell 0.9% after increasing 0.1% in April, while export prices, excluding agriculture, fell 1.0% after rising 0.1% in April.
• The NAHB Housing Market Index fell to 32 in June (Briefing.com consensus 36) from 34 in May.
• Business Inventories were unchanged in April (Briefing.com consensus 0.0%) after rising a revised 0.1% (from 0.0%) in March.