Stock Market Update

[BRIEFING.COM] The major averages trade modestly lower at midday after some back-and-forth action during the first half of the Thursday session. The Dow (unch) is right below its flat line while the Nasdaq (-0.2%) and S&P 500 (-0.2%) underperform slightly.

The market has been whipped around by headlines, starting with some growth concerns resulting from today's economic data, as the productivity reading for Q1 was revised down to -1.5% from -0.7% in the previous estimate while unit labor cost growth was revised up to 6.6% from 5.7%, making for a combination that will invite concerns about potential stagflation in the economy.

Equities recovered from their early weakness after it was reported that President Trump and China's President Xi held their highly-anticipated phone call. Both sides spoke positively about the conversation with President Trump promising an in-person meeting soon.

The trade optimism, which briefly lifted the S&P 500 to within a whisker of the 6,000 mark, morphed into budget-related pessimism a while ago after President Trump was forced to defend his "big beautiful bill" from criticism from Elon Musk, who said that the bill should be struck down.

Six sectors hold midday losses with consumer discretionary (-1.0%) at the bottom of today's leaderboard thanks to a recent slide in Tesla (TSLA 304.78, -27.27, -8.2%). The consumer staples sector (-1.0%) also lags with Costco (COST 1016.78, -34.91, -3.3%) down sharply, as it meets profit taking after reporting strong comparable sales for May.

Top-weighted technology (unch) has been at the forefront of today's volatility with chipmakers in focus ahead of tonight's release of quarterly results from Broadcom (AVGO 262.65, +1.57, +0.6%).

Treasuries are mostly lower after backpedaling from early highs with the 10-yr yield up one basis point at 4.38%.

Reviewing today's economic data:

• One thing that became crystal clear this morning is that the trade deficit plunged in April to $61.6 billion (Briefing.com consensus -$117.2 billion) from an upwardly revised deficit of $138.3 billion (from -$140.5 billion) in March. Exports were $8.3 billion more than March exports, but imports were $68.4 billion less than March imports.
  • There is no question that the tariff actions upended import activity, which made a major dent in the trade deficit and which will make a materially positive contribution to the net exports component of Q2 GDP. That is good news.
• Q1 productivity decreased 1.5% (Briefing.com consensus -0.8%) versus the preliminary report of a 0.8% decrease. Unit labor costs, meanwhile, were revised up to 6.6% (Briefing.com consensus 5.7%) from the preliminary reading of 5.7%.
  • That is a bad combination with stagflation undertones that will complicate the Fed's assessment of the overall economic picture and what to do with its policy rate.
• Initial jobless claims for the week ending May 31 increased by 8,000 to 247,000. Continuing jobless claims for the week ending May 24 decreased by 3,000 to 1.904 million; however, the four-week moving average of 1,895,250 is the highest level since November 27, 2021.
  • These data point to some softening in the labor market but altogether don't ring any loud alarm bells for the economic outlook. Yes, initial jobless claims -- a leading indicator -- have risen, but they remain well below levels associated with a recession. It won't be until the initial claims numbers start to exceed 300,000 on a regular basis that alarms will sound with respect to the labor market and the economy's growth trajectory.