Stock Market Update

[BRIEFING.COM] The stock market spent the majority of the morning steadily building towards a modest gain that was supported by the tamer-looking June PPI report (versus the June CPI report), solid earnings results from major financial institutions, and earnings results and guidance from Johnson & Johnson (JNJ 164.54, +9.37, +6.0%) that impressed investors.

The market hit a pocket of volatility following reports that President Trump was likely to fire Fed Chairman Jerome Powell, which sent the major averages to their session lows.

President Trump was asked about the possible move by the press pool in an Oval Office interview and stated that it is "highly unlikely" that he will fire the Fed Chair, unless there is fraud, and that "we don't have anything planned." This promptly snapped the major averages back from session lows, and they now linger just below unchanged levels.

Losses today have been modest but broad-based. Eight S&P 500 sectors trade in the red after spending most of the morning almost evenly split.

Defensive sectors such as health care (+1.1%) and real estate (+0.6%) have been able to escape the headline volatility unscathed, with the health care sector benefiting from Johnson & Johnson (JNJ 165.55, +10.38, +6.7%) reporting strong Q2 upside results for both EPS and revs and raising its FY25 outlook.

The information technology sector (-unch) was a notable laggard before the Fed Chair headline hit. Chipmakers faced early pressure after ASML (ASML 744.99, -78.03, -9.5%) stated that the company cannot confirm if it will deliver growth in FY26, despite beating EPS expectations. The PHLX Semiconductor Index is down 1.5%, after being the market's most notable point of strength yesterday, finishing with a gain of 1.3%.

The financials sector (+0.3%) has clawed back into positive territory for the day. Goldman Sachs (GS 701.36, -1.15, -0.2%), Morgan Stanley (MS 137.56, -4.03, -2.8%), and Bank of America (BAC 45.58, -0.57, -1.2%) all surpassed EPS expectations in their earnings reports. While today's reporters are down modestly, this is likely a sell-the-news reaction following an impressive run, and it is also worth noting that the sector saw a 0.4% intraday decrease following the reports of a potential Fed Chair firing.

Treasuries have also experienced some volatility today. Interest rates fell in response to the June PPI which saw some disinflation metrics, before rising in the wake of the Fed Chair headlines. The 2-yr note yield, which is more sensitive to changes in the Fed funds rate, moved to lower lows on the initial report of an imminent firing of Fed Chair Powell, while the 10-yr note yield and 30-yr bond yield, which are more sensitive to inflation pressures, moved higher.

Currently, the 2-yr note yield is down five basis points to 3.90%, the 10-yr note yield is down one basis point at 4.48% (after trading down to 4.44%), and the 30-yr bond yield is up three basis points to 5.05% (after trading down to 4.97%).

Reviewing today's data:

• The index for final PPI demand was unchanged month-over-month in June (Briefing.com consensus: 0.2%) following an upwardly revised 0.3% increase (from 0.1%) in May. The index for final demand, less foods and energy, was also unchanged month-over-month (Briefing.com consensus: 0.2%) following an upwardly revised 0.4% increase (from 0.1%) in May. The index for final demand was up 2.3% year-over-year, versus 2.7% in May, while the index for final demand, less foods and energy, was up 2.6% year-over-year, versus 3.2% in May.
  • The key takeaway for the market is the disinflation seen on a month-over-month and year-over-year basis. That is clearly moving in the Fed's preferred direction, and the unchanged readings for June should foster good thoughts about what the PCE Price Index for June will show when it is released.
• Industrial production increased 0.3% month-over-month in June (Briefing.com consensus 0.1%) following an upwardly revised unchanged reading (from -0.2%) in May.The capacity utilization rate was 77.6% (Briefing.com consensus 77.4%), versus an upwardly revised 77.5% (from 77.4%) in May.Total industrial production increased 0.7% yr/yr while the capacity utilization rate was 2.0 percentage points below its long-run average.
  • The key takeaway from the report is that the jump in industrial production in June was driven mostly by an increase in the output of utilities, which tends to be volatile based on weather conditions. Manufacturing output was up, but only by a modest 0.1% despite a more conciliatory tariff environment.