Stock Market Update

[BRIEFING.COM] The major indices have been on the defensive mostly since the start of today's trading, undercut by a lack of buying interest ahead of the extended holiday weekend. 

The lack of buying interest has been influenced by some AI growth concerns triggered by some disappointing quarterly results from Dell (DELL 123.05, -11.00, -8.21%) and Marvell (MRVL 64.30, -12.94, -16.75%), some tariff concerns driven by Caterpillar (CAT 416.48, -18.44, -4.24%) warning that its full-year adjusted operating margin will likely be at the bottom of the company's target range due to tariff costs being higher than expected, and some consternation about consumer sentiment weakening in August and PCE inflation sticking comfortably above the Fed's 2.0% target in July.

The latter point notwithstanding, the market continues to expect a 25 basis-point rate cut at the September 16-17 FOMC meeting. That view is evident in the fed funds futures market, which shows an 86.9% probability of a 25 basis-point cut (versus 86.7% a day ago), and it was supported by Fed Governor Waller's (FOMC voter) declaration that he supports a 25 basis-point cut in September.

Mr. Waller went on to add that he sees scope for additional cuts over the next three to six months given that the current target range (4.25-4.50%) is 125-150 basis points above neutral.

Still, the rate-cut expectation has not been enough thus far to foster follow-through buying interest after yesterday's record-setting close for the S&P 500. A weak information technology sector (-1.5%), which is feeling the weight of losses in NVIDIA and other semiconductor stocks, has been a major drag on the broader market along with the underperformance of the mega-cap cohort.

The Vanguard Mega Cap Growth Index Fund (MGK 384.17, -4.47, -1.15%) is down 1.2%. 

In general, there is weakness all around. Small-cap, mid-cap, and large-cap stocks, as a class, are succumbing to some profit-taking interest at the end of what has been a very good month for the stock market. A lack of concerted leadership to this point has held back buy-the-dip efforts, although the major indices are off their lows of the day.

Other sector laggards of note include the consumer discretionary (-1.2%) and industrials (-1.0%) sectors. Conversely, the energy (+0.5%), financial (+0.4%), health care (+0.4%), real estate (+0.3%), consumer staples (+0.3%), and materials (+0.1%) sectors are all higher.

Separately, the 2-yr note yield is down two basis points to 3.62%, and the 10-yr note yield is up one basis point to 4.22%, having shown little reaction to today's economic data.

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.