Stock Market Update

[BRIEFING.COM] The stock market opened to broad-based retreats following the July PPI report (up 0.9% month-over-month; Briefing.com consensus 0.2%), though the market's reaction was muted in comparison to Tuesday's advance that followed a friendlier CPI report for July (up 0.2%; Briefing.com consensus 0.2%), with the major averages ultimately finishing on their flatlines.

While the S&P 500 spent the majority of the session in negative territory, a slight gain of 0.03% saw the index capture a new record high of 6,468.54.

Tuesday's CPI report boosted the probability of a 25 basis-point September rate cut to 99.9%. Today's data lessened that probability to 92.6%, according to the CME FedWatch tool.

While a September rate cut is still highly likely, the July PPI report threw a serious wrench into recent arguments for a 50 basis-point cut. St. Louis Fed President Musalem (FOMC voter) and San Francisco Fed President Daly (non-voter) both stated today that the current data does not reflect the need for a 50 basis-point cut, with Musalem remarking that he will go into the September meeting with an open mind.

Losses were especially broad-based in the early going, with all eleven S&P 500 sectors opening in negative territory, though the market would finish much improved from session lows.

The communication services (+0.4%) sector benefitted from modest gains in its mega-cap constituents, Meta Platforms (META 782.13, +2.05, +0.26%) and Alphabet (GOOG 203.82, +0.79, +0.39%), while a strong performance in Amazon (AMZN 230.98, +6.42, +2.86%) propped up an otherwise weak consumer discretionary sector (+0.5%).

Investors continued to do some bargain hunting in the health care sector (+0.5%), and the financials sector (+0.6%) also notched a nice gain, rounding out the four S&P 500 sectors that advanced today. The information technology sector finished flat.

The other six sectors would see losses that ranged from 0.2% to 0.9%, as breadth figures denoted broad-based selling activity, with decliners outpacing advancers by a nearly 3-to-1 margin on the NYSE and a greater than 2-to-1 ratio on the Nasdaq.

Despite the broad-based retreat, a rotation back into several mega-cap names kept the losses modest. The Vanguard Mega Cap Growth ETF advanced 0.3% today, and the market-weighted S&P 500 (flat) noticeably outperformed the S&P 500 Equal Weighted Index (-0.6%).

Meanwhile, the Russell 2000 (-1.2%) and S&P Mid Cap 400 (-1.2%) gave back a good chunk of their advances from earlier in the week, with rising market rates and a re-think of the policy outlook tempering some of the rotational excitement that followed the CPI report

U.S. Treasuries retreated on Thursday, sending yields from their lowest levels of the week back toward highs from Tuesday. The 2-year note yield settled up five basis points at 3.74%, and the 10-year note yield settled up six basis points at 4.29%.

• Russell 2000: +3.6% WTD
• S&P Mid Cap 400: +2.1% WTD
• DJIA: +1.7% WTD
• S&P 500: +1.2% WTD
• Nasdaq Composite: +1.2% WTD

Reviewing today's data:

• The index for final demand jumped 0.9% month-over-month in July (Briefing.com consensus: 0.2%) following an unchanged reading in June. The index for final demand, excluding food and energy, also increased 0.9% month-over-month (Briefing.com consensus: 0.2%) following an unchanged reading in June. With these readings, the index for final demand is up 3.3% year-over-year, versus 2.4% in June, while the index for final demand, excluding food and energy, is up 3.7%, versus 2.6% in June.
  • The key takeaway from the report, other than that it completely flies in the face of the relatively friendly CPI report, is that wholesale prices rose appreciably across all stages of production and for both goods and services. The concern will be that this inflation will register in the PCE Price Index and keep the Fed from being as aggressive with its rate cut approach as had been envisioned following the CPI data.
• Initial jobless claims for the week ending August 9 decreased by 3,000 to 224,000 (Briefing.com consensus: 228,000), while continuing jobless claims for the week ending August 2 decreased by 15,000 to 1.953 million.
  • The key takeaway from the report is still the same. Layoffs are low, but finding a new job, if laid off, is taking longer. Weekly natural gas inventories increased by 56 bcf after increasing by 7 bcf a week ago.