Stock Market Update

[BRIEFING.COM] The stock market opened to substantial gains across its mega-cap components after a federal judge ruled that Alphabet (GOOG 231.10, +19.11, +9.01%) can retain its Chrome browser, though the broader market lagged behind, limiting index-level growth and keeping the major averages mixed.

The tech-heavy Nasdaq Composite (+1.0%) led the way, while the S&P 500 (+0.5%) secured a modest gain after slipping to its flatline, and the DJIA (-0.1%) spent the entirety of the session in negative territory.

Only three S&P 500 sectors finished (or spent any material amount of time) in positive territory, though the gains were concentrated enough in the market's largest names to carry the major averages.

Alphabet's rally pushed the communication services sector (+3.8%) to a record high level, while Apple (AAPL 238.47, +8.75, +3.81%) and the information technology sector (+0.5%) also benefited, as the ruling will allow Google to remain the default search engine on Apple's iPhone. 

The consumer discretionary sector (+0.5%) benefitted from strong mega-cap leadership of its own, as Tesla (TSLA 334.09, +4.73, +1.44%) captured a nice gain. 

The Vanguard Mega Cap Growth ETF finished the day with a 0.9% gain, and the market-weighted S&P 500 (+0.4%) decidedly outperformed the S&P 500 Equal Weighted Index (-0.4%), demonstrating the influence that the mega-cap cohort has over the broader market. 

Outside of the mega-cap space, the consumer discretionary sector also benefited from relatively strong performances among retailer names. Though not a component of the sector, Macy's (M 16.28, +2.79, +20.68%) traded sharply higher after an impressive earnings beat today, though Dollar Tree (DLTR 102.03, -9.32, -8.37%) traded lower despite EPS and revenue beats of its own, with investors startled by flat Q3 guidance amid continued tariff volatility. 

The SPDR S&P Retail ETF closed with a 0.5% gain for the day.

Seven other S&P 500 sectors closed lower, while some late-session buying activity saw the consumer staples sector finish flat. Though the majority of names sat out today's mega-cap-fueled rally, losses were relatively modest.

Only the energy sector (-2.3%) finished with a loss wider than 0.6%, with the sector facing pressure as crude oil settled today's session $1.60 lower, or -2.1%, to $64.00 per barrel. Reuters reported that OPEC+ may discuss an output increase at Sunday's meeting, which will include representatives from eight member nations.

Looking beyond the S&P 500, smaller cap names retreated, with the Russell 2000 finishing 0.2% lower and the S&P Mid Cap 400 finishing 0.4% lower.

Though Alphabet's antitrust ruling was the main catalyst behind today's actions, corporate headlines were relatively slim today. Monetary policy, however, received plenty of coverage as the market was inundated with headlines surrounding the FOMC.

Fed Governor Christopher Waller (FOMC voting member) told CNBC he supports a September rate cut, pointing to labor softness. Mr. Waller acknowledged the potential for a near-term inflation uptick but said he expects it to fall back to the 2.0% target within six to seven months.

A weaker-than-expected July JOLTS report added to evidence of a cooling labor market, strengthening expectations for policy easing.

St. Louis Fed President Alberto Musalem (FOMC voting member) also noted weakening labor conditions, though he cautioned that tariff-driven inflation could be more persistent than current forecasts suggest.

Atlanta Fed President Raphael Bostic (FOMC non-voting member) stated he could support a September cut if the job market deteriorates more than anticipated.

Beyond the policy debate, Fed independence was in the spotlight. Fed Governor Waller emphasized the central bank's independence when asked generally about governance, though he avoided direct comment on the mortgage fraud allegations facing Fed Governor Lisa Cook (FOMC voting member).

CNBC also reported that Senator Thom Tillis (R-NC) will not consider any replacement nominee for Cook until her case is resolved in court.

Rate expectations firmed further, with the CME FedWatch Tool now assigning a 95.6% probability to a 25-basis-point cut in September, up from 92.7% yesterday.

Ultimately, Tuesday's action underscored how heavily the market leans on its largest names for support. While Fed commentary and soft labor data strengthened conviction in a September rate cut, the broader market remains cautious, leaving mega-cap momentum as the primary driver of index-level gains.

U.S. Treasuries ended Wednesday with solid gains across the curve that wiped out the market's losses from the start of the week. The 2-year note yield settled down five basis points to 3.61%, and the 10-year note yield settled down seven basis points to 4.21%. 

• Nasdaq Composite: +11.3% YTD
• S&P 500: +9.6% YTD
• DJIA: +6.4% YTD
• Russell 2000: +5.4% YTD
• S&P Mid Cap 400: +3.6% YTD

Reviewing today's data:

• Weekly MBA Mortgage Applications Index -1.2%; Prior -0.5%
• July Factory Orders -1.3% (Briefing.com consensus -1.4%); Prior -4.8%
  • The key takeaway from the report is that the weakness in factory orders in July was concentrated in the transportation space, so the weakness was not as acute as the headline might suggest. New orders for primary metals (+1.6%), machinery (+1.9%), computers and electronic products (+1.2%), and electrical equipment, appliances, and components (+1.9%) were all up in a good sign for factory order activity.
• July JOLTS - Job Openings 7.181 mln; Prior was revised to 7.357 mln from 7.437 mln
• The Fed's Beige Book had some stagflation undertones, as eleven Districts described little or no net change in overall employment levels, while one District described a modest decline. Half of the Districts described modest growth in wages, while most of the others reported moderate growth. Two Districts noted little or no change in wages.
  Most Districts reported that their firms were expecting price increases to continue in the months ahead, with three of those Districts noting that the pace of price increases was expected to rise further.