Stock Market Update

[BRIEFING.COM] The stock market churned, but it did not burn in a session marred by some disappointing economic data and an acknowledgment by President Trump that President Xi is "very tough, and extremely hard to make a deal with."

There was no other context behind the president's remark, as speculation swirled that the two leaders could speak on Friday, but it was enough to cast some doubt on the state of the U.S.-China relationship and where their respective tariff rates and trade restrictions could go.

The market, for the most part, chopped around today in a lightly traded session that lacked conviction on the part of buyers and sellers. Still, the market cap-weighted indices managed to hold their form with the help of some relative strength among the mega-cap stocks, namely Meta Platforms (META 687.95, +21.10, +3.2%), Amazon.com (AMZN 207.23, +1.52, +0.7%), and NVIDIA (NVDA 141.92, +0.70, +0.5%).

Their gains helped mitigate the weakness in CrowdStrike (CRWD 460.56, -28.20, -5.8%) after its earnings report and disappointing revenue guidance and the weakness in Apple (AAPL 202.82, -0.45, -0.2%) after it was downgraded at Needham to Hold from Buy.

Once again, the semiconductor stocks stood out from the crowd, evidenced by the 1.4% gain in the Philadelphia Semiconductor Index. They were an outlier in a hesitant market that was also grappling with growth concerns driven by today's main economic reports.

The ADP Employment Change Report for May indicated that there were only 37,000 jobs added to private-sector payrolls (Briefing.com consensus 115,000) and none for small businesses, which lost 13,000 jobs. That report came out at 8:15 a.m. ET, and it was followed at 10:00 a.m. ET by the ISM Services PMI for May, which printed a contractionary reading (49.9%) for only the fourth time in the last 60 months.

Treasury yields turned lower in the wake of both reports. The 2-yr note yield, at 3.96% just before the ADP release, settled at 3.88%, down eight basis points. The 10-yr note yield, at 4.46% just before the ADP release, settled at 4.36%, down 10 basis points.

The dollar traded lower in conjunction with Treasury yields, but the drop in rates failed to motivate a hot stock market that took a breather in a consolidation trade. Entering today, the S&P 500 was up 23.5% from its April 7 low and trading at 21.6x forward 12-month earnings, which is a 17% premium to its 10-yr average, according to FactSet.

The communication services sector (+1.4%) was the best-performing sector and the only sector up at least 1.0%. The materials (+0.3%) and real estate (+0.3%) sectors were the next best-performing sectors. The energy (-1.9%) and utilities (-1.7%) sectors were today's biggest losers.

• S&P 500: +1.5% YTD
• Nasdaq: +0.8% YTD
• DJIA: -0.3% YTD
• S&P 400: -3.1% YTD
• Russell 2000: -5.9% YTD

Reviewing today's economic data:

• The ISM Services PMI fell to 49.9% in May (Briefing.com consensus 52.0%) from 51.6% in April. The dividing line between expansion and contraction is 50.0%, so the May reading reflects services sector activity pivoting to contraction from growth in the prior month. This is only the fourth time in the last 60 months that the Services PMI has been below 50.0%.
  • The key takeaway from the report is that it signaled a worrying mix of a contraction in growth for the largest economic sector and a continued increase in prices. That will be interpreted as a stagflation report (even though the employment index tipped back into an expansion mode). In any case, the overarching message of the report is that growth has slowed amid all the tariff uncertainty.
• ADP said private sector employment increased by 37,000 in May (Briefing.com consensus 115,000) following a downwardly revised 60,000 (from 62,000) in April. The goods-producing sector saw a loss of 2,000 jobs, while the service-providing sector saw an increase of 36,000. Mid-sized firms added 49,000 jobs, but small firms shed 13,000 jobs, and large firms saw a loss of 3,000 jobs.
• The S&P Global US Services PMI checked in at 53.7 versus its prior reading of 50.8.
• The MBA's Mortgage Applications Index was down 3.9% wk/wk, with refinance applications down 4% and purchase applications down 4%.