Stock Market Update

[BRIEFING.COM] The S&P 500 (-0.4%) closed lower for the fifth consecutive session today, and the Nasdaq Composite's (-0.3%) loss marks five retreats out of the past six sessions. While the DJIA (-0.3%) has weathered this week's mega-cap weakness better than its counterparts, it closed with a similar loss today, as losses were more broad-based.

The stock market retreated following some hawkish Fed speak that chipped away at rate cut expectations, while this morning's earnings reports and economic data also disappointed.

Kansas City Fed President Schmid (voting FOMC member) said in a CNBC interview that he is not in a hurry to cut rates, citing several key inflation readings that will come out between now and the September FOMC meeting. Cleveland Fed President Beth Hammack (non-voting FOMC member) stated in a Yahoo! Finance interview that she sees no imminent case for rate cuts, as inflation remains too high.

Today's economic data further stoked inflation concerns.

The Philadelphia Manufacturing Business Outlook Survey dropped to -0.3 in August (Briefing.com consensus: 9.0) from 15.9 in July, while the indexes for prices paid (66.8 from 58.8) and prices received (36.1 from 34.8) both went up versus July, reflecting an acceleration of price increases.

While the preliminary S&P U.S. Global Manufacturing PMI (53.3 from 49.8) showed a return to growth and the Services PMI (55.4 from 55.7) showed only a modest slowdown in the pace of expansion, it is worth noting that both PMI reports showed a sharp increase in input prices, which was attributed to tariffs.

Coupled with the rise in initial jobless claims (235,000 vs. Briefing.com consensus of 222,000) and continuing claims (up 30,000 to 1.972 million), today's data, in aggregate, tipped toward a stagflation environment.

The jump in initial and continuing claims is apt to keep economists' nonfarm payroll estimates in a soft growth zone, which could possibly lead to a more dovish tone in Fed Chair Powell's speech at Jackson Hole tomorrow, the market's most anticipated happening this week. However, with the July core CPI and July core PPI moving away from the Fed's two percent inflation target, and more inflation and employment data to come before the next FOMC meeting, Powell is likely to reiterate his "wait-and-see approach."

As it stands now, the probability of a 25-basis point rate cut at the September FOMC meeting is 73.6%, down from 82.4% yesterday and 92.1% a week ago, according to the CME FedWatch tool.

Today's retreat was broad-based, with nine S&P 500 sectors finishing in negative territory.

The consumer staples sector (-1.2%) posted the widest loss as Walmart's (WMT 97.96, -4.62, -4.50%) first earnings miss since May 2022 had a rippling effect throughout the sector. Walmart missed EPS expectations by $0.05 despite in-line revenues, citing increasing costs as the company replenishes inventory at post-tariff prices.

Mega-cap stocks faced pressure again today, though the declines were less severe than yesterday. Weakness in their largest components pulled the consumer discretionary (-0.7%), information technology (-0.4%), and communication services (-0.4%) sectors lower. The Vanguard Mega Cap Growth ETF (-0.4%) finished identically to the S&P 500 (-0.4%) and the S&P 500 Equal Weighted Index (-0.4%).

The Russell 2000 (+0.2%) outperformed, and the S&P Mid Cap 400 (-0.2) saw a modest loss

Meanwhile, the energy sector (+0.7%) was the top performer today, benefitting from oil futures settling the session $0.80 higher (+1.3%) at $63.50 per barrel. The materials sector (+0.3%) also captured a modest gain.

U.S. Treasuries retreated on Thursday, lifting yields toward their highest levels of the week. The 2-year note yield settled up five basis points to 3.79%, and the 10-year note yield settled up three basis points to 4.33%.

• Nasdaq Composite: +9.3% YTD
• S&P 500: +8.3% YTD
• DJIA: +5.3% YTD
• Russell 2000: +2.0% YTD
• S&P Mid Cap 400: +1.5% YTD

Reviewing today's data:

• Weekly Initial Claims 235K (Briefing.com consensus 222K); Prior 224K, Weekly Continuing Claims 1.972 mln; Prior was revised to 1.942 mln from 1.956 mln
  • The key takeaway from the report is that it covers the period in which the survey for the August employment report is completed. The jump in initial and continuing claims is apt to keep economists' nonfarm payroll estimates in a soft growth zone.
• August Philadelphia Fed Index -0.3 (Briefing.com consensus 9.0); Prior 15.9
• August S&P Global U.S. Manufacturing PMI - Prelim 53.3; Prior 49.8
• August S&P Global U.S. Services PMI - Prelim 55.4; Prior 55.7
• July Existing Homes Sales 4.01 mln (Briefing.com consensus 3.92 mln); Prior 3.93 mln
  • The key takeaway from the report is that a moderation in selling prices, coupled with an increase in inventory (the highest since May 2020), helped boost sales despite the persistence of higher mortgage rates.
• July Leading Indicators -0.1% (Briefing.com consensus -0.1%); Prior -0.3%