Stock Market Update

[BRIEFING.COM] The S&P 500 (+0.3%) and Nasdaq Composite (+0.1%) opened to new all-time high levels, with yesterday's July CPI release providing enough momentum for the indices to close with modest gains and record closing highs, despite some profit taking throughout the day. 

At its peak, the S&P 500 set a record intraday high of 6,480.28 and captured a record closing high of 6,466.58. The Nasdaq Composite set a record intraday high of 21,803.75 and notched a record closing high of 21,713.14.

Interest rate cut optimism was buoyed following comments from Treasury Secretary Scott Bessent on Fox Business last night advocating for a 50 basis-point rate cut, a stance he reiterated on Bloomberg TV this morning while adding that the Fed funds rate range should ultimately be reduced by at least 150 basis points.

The CME FedWatch Tool assigned a 99.9% probability of a 25 basis-point rate cut at the September FOMC meeting in the late morning, though this would later be reduced to 97.9% after Chicago Fed President Austan Goolsbee (FOMC voting member) stated that he is not committed to a September rate cut, citing concerns about an increase in services inflation. 

Atlanta Fed President (FOMC nonvoting member) stated today that the central bank can wait to make policy adjustments because the labor market remains strong.

Nonetheless, the stock market largely advanced as a friendlier interest rate environment seems inevitable, though an underperformance in mega-cap names stymied growth in the S&P 500 and Nasdaq Composite, while the DJIA (+1.1%) outperformed with its mega-cap exposure limited to just Microsoft (MSFT 520.58, -8.66, -1.64%).

The Vanguard Mega Cap Growth ETF finished with just a 0.1% gain, while the Russell 2000 (+2.0%) continued its rally this week, and the S&P 500 Equal Weighted Index (+1.3%) decidedly outperformed the market-weighted S&P 500 (+0.3%). 

Mega-cap underperformance contributed to modest losses in the communication services (-0.5%) and information technology (-0.2%) sectors, while the defensive consumer staples sector (-0.4%) also closed in negative territory.

The other eight S&P 500 sectors finished above their baselines, with the materials (+1.7%), health care (+1.6%) consumer discretionary (+1.3%) and energy (+1.2%) sectors capturing gains wider than 1.0%.

The consumer discretionary sector reaped the benefits of the expected friendlier interest rate environment, seeing notable gains in its homebuilder components that pushed the iShares U.S. Home Construction ETF (+4.5%) to a substantial gain.

Elsewhere, the health care sector saw considerable strength in its biotechnology names and strong leadership in top names such as Eli Lilly (LLY 660.70, +21.27, +3.33%) and UnitedHealth (UNH 271.84, +10.28, +3.93%).

Investors are continuing this week's trend of bargain hunting in the worst-performing S&P 500 sector this year, which, in conjunction with a retreat in several mega-cap names and continued small-cap outperformance, may signal a rotation in the market towards overlooked names that could benefit from looser monetary conditions.

U.S. Treasuries recorded solid gains on Wednesday in response to rising rate cut expectations, sending the 2-year note yield toward its August low (3.653%) while yields slipped to fresh lows for the week. The 2-year note yield settled down four basis points to 3.69%, and the 10-year note yield settled down six basis points to 4.24%.

• Russell 2000: +4.9% WTD
• S&P Mid Cap 400: +3.5% WTD
• DJIA: +1.7% WTD
• Nasdaq Composite: +1.2% WTD
• S&P 500: +1.2% WTD

Reviewing today's data:

• The weekly MBA Mortgage Index jumped 10.9% to follow last week's 3.1% increase. The Refinance Index jumped 23.0% while the Purchase Index was up 1.4%.