Stock Market Update

[BRIEFING.COM] The stock market started today's session on a lower note, sliding at the open and setting the table yet again for a buy-the-dip opportunity. This time, however, there was no buy-the-dip interest. Instead, the indices remained pinned in negative territory, unable to escape the weight of losses in the mega-cap space, the semiconductor industry, and a general lack of buying interest ahead of the Labor Day weekend.

Today was a day of consolidation following a very good month for the stock market that produced record highs for the Dow, Nasdaq, and S&P 500.

Small-cap stocks, mid-cap stocks, large-cap stocks, and mega-cap stocks, as a class, were all on the weaker side of things in a lightly-traded session that reflected an early jump on holiday pursuits. The Russell 2000 declined 0.5%, the S&P MidCap 400 dropped 0.5%, the equal-weighted S&P 500 fell 0.1%, and the Vanguard Mega Cap Growth Index Fund (MGK) lost 1.2%. Markets will be closed on Monday in observance of Labor Day.

For the participants that were around today, they observed a market devoid of concerted leadership and pressured by the weight of losses in NVIDIA (NVDA 174.24, -5.93, -3.29%), the fallout in Dell (DELL 122.12, -11.93, -8.90%) and Marvell (MRVL 62.86, -14.36, -18.60%) following their earnings reports, the weakness in Caterpillar (CAT 419.19, -15.72, -3.61%) after it acknowledged higher-than-expected tariff costs will lead to its full-year adjusted operating margin coming in at the bottom end of the company's guidance, and a combination of weakening consumer sentiment and sticky PCE inflation.

What they didn't observe was any meaningful change in the market's expectations for a rate cut at the September FOMC meeting. PCE inflation may have been sticky, but so, too, was the probability of a rate cut at that meeting. According to the CME FedWatch Tool, the probability sits at 86.9% versus 86.7% a day ago.

That sentiment found an advocate in Fed Governor Waller (FOMC voter), who said he supports a 25 basis-point cut and anticipates additional cuts over the next three to six months since the target range for the fed funds rate (4.25-4.50%) is 125-150 basis points above neutral.

Fed Governor Cook, meanwhile, was preoccupied with other matters today. There was a hearing on her bid to prevent President Trump from firing her, although the hearing ended without any ruling, according to CNBC.

The stock market wasn't preoccupied with that hearing so much as it was preoccupied by holiday plans and the underperformance of the information technology sector (-1.6%), which is the market's most heavily weighted sector. A 3.2% decline in the Philadelphia Semiconductor Index underscores how the sector's semiconductor components factored heavily in the sector's weakness.

There were only two other sectors that underperformed the S&P 500 (-0.6%) today. They were the consumer discretionary (-1.1%) and industrials (-1.0%) sectors.

Some pockets of relative strength were found in the health care (+0.7%), consumer staples (+0.6%), real estate (+0.6%), energy (+0.5%), financials (+0.2%), and materials (flat) sectors, but collectively that wasn't enough to overcome the losses in the information technology, consumer discretionary, industrials, utilities (-0.4%), and communication services (-0.3%) sectors.

The end result was that the market finished August, which had its share of bang-up days, with a whimper.

Separately, today's action in the Treasury market was largely uneventful. The 2-yr note yield settled two basis points lower at 3.62%, while the 10-yr note yield settled up two basis points at 4.23%.

• Nasdaq Composite: +11.1% YTD
• S&P 500: +9.8% YTD
• DJIA: +7.1% YTD
• Russell 2000: +6.0% YTD
• S&P MidCap 40: +4.2% YTD

Reviewing today's economic data:

• Personal income, bolstered by a 0.6% increase in wages and salaries, increased 0.4% month-over-month in July (Briefing.com consensus: 0.4%) following a 0.3% increase in June, personal spending increased 0.5% month-over-month (Briefing.com consensus: 0.5%) following an upwardly revised 0.4% increase (from 0.3%) in June, the PCE Price Index increased 0.2% month-over-month (Briefing.com consensus: 0.2%) following a 0.2% increase in June, and core PCE inflation, which excludes food and energy, increased 0.3% month-over-month (Briefing.com consensus: 0.3%) following a 0.3% increase in June.On a year-over-year basis, PCE inflation was up 2.6%, versus 2.6% in June, while core PCE inflation was up 2.9%, versus 2.8% in June. The Fed's inflation target is 2.0%.
  • The key takeaway from the report is that it was largely in line with expectations, so the market is apt to stick to its thinking that there will be a rate cut in September even though PCE inflation remains stuck above the Fed's 2.0% target.
• The final University of Michigan Consumer Sentiment reading for August checked in at 58.2 (Briefing.com consensus: 58.6) versus the preliminary reading of 58.6 and the final reading of 61.7 for July. In the same period a year ago, the index stood at 67.9.
  • The key takeaway from the report is that perceptions about the economy slipped in many aspects, and the weaker sentiment was visible across groups by age, income, and stock wealth.
• July Adv. Intl. Trade in Goods -$103.6 bln (prior revised to -$84.9 bln from -$96.4 bln); July Adv. Retail Inventories 0.2% (prior revised to 0.1% from 0.3%); July Adv. Wholesale Inventories 0.2% (prior 0.2%).
• August Chicago PMI 41.5 vs. 46.0 Briefing.com consensus; prior 47.1.