Stock Market Update

[BRIEFING.COM] The major averages are little changed at midday after spinning their wheels through the first half of the Wednesday session. The S&P 500 (+0.1%) hovers right above its flat line while the Nasdaq (+0.2%) is a step ahead.

Equities have tried to build on their gains from the past two days, but the market has had to contend with some disappointing economic data, which invited increased caution. The first hit came from a disappointing ADP Employment Change report for May (37,000; Briefing.com consensus 115,000) and it was followed by a contractionary reading of the ISM Services Index for May (49.9%; Briefing.com consensus 52.0%).

Treasuries have spent the first half of the day in steady rise after the disappointing data while equities are fighting to stay positive with five sectors hanging onto gains, led by communication services (+0.9%) and health care (+0.7%).

Mega cap names are largely responsible for the outperformance in the communication services sector, as Meta Platforms (META 682.34, +15.49, +2.3%) rises to its best level since late February, while health care has been supported by drugmakers after FT reported that Merck (MRK 79.04, +1.90, +2.5%) is interested in acquiring MoonLake Immunotherapeutics (MLTX 50.87, +2.32, +4.8%).

On the downside, the energy sector (-1.7%) is the worst performer as crude oil finds resistance near its 50-day moving average (62.77) after the latest weekly inventory report from the EIA showed a bullish crude oil draw and a bearish gasoline inventory build.

Top-weighted technology (-0.1%) also trades lower after reversing from its early high, though chipmakers remain ahead with the PHLX Semiconductor Index (+1.0%) extending this week's gain to 5.4% after onsemi (ON 50.30, +2.93, +6.2%) expressed some optimism at a conference late yesterday.

Treasuries are on their highs with the 10-yr yield falling eleven basis points to 4.35%.

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.
• The final May reading of the S&P Global U.S. Services PMI hit 53.7, up from 52.3 in the preliminary reading and 50.8 in the final reading for April.
• The ADP Employment Change report for May showed the addition of just 37,000 nonfarm payrolls (Briefing.com consensus 115,000) while the April increase was revised down to 60,000 from 62,000.
• The weekly MBA Mortgage Index fell 3.9% to follow last week's 1.2% decrease. The Purchase Index was down 4.4% while the Refinance Index fell 3.5%.