Stock Market Update

[BRIEFING.COM] Stocks are giving back some of their strength from the previous two sessions this week, with the S&P 500 (-0.7%), Nasdaq Composite (-0.8%), and DJIA (-0.9%) trading in a relatively tight range near their session lows. 

Equity futures moved sharply lower this morning following the release of the February PPI report (0.7%; Briefing.com consensus 0.3%), which came in hotter-than-anticipated. The report weighed on the market's already dwindling rate-cut hopes, with the CME FedWatch tool now assigning a roughly 60% probability to at least a 25-basis point rate cut at the December FOMC meeting, down from around 70% yesterday. 

The market is nearly certain today's FOMC meeting will not result in any changes to the fed funds target rate, though investors are eager to see the effect that the recent surge in oil prices has on the Summary of Economic Projections and, in turn, any commentary on the expected policy path. 

While macro developments will continue to take center stage as the 2:00 p.m. ET FOMC decision looms, the market also faces some pressure on the geopolitical front. 

Bloomberg reported this morning that Iran has released a list of energy sites across countries in the Persian Gulf region that it threatens to attack in retaliation for an Israeli strike against an Iranian gas field. Crude oil is up $1.30 (+1.4%) to $96.83 per barrel, though it is off its session highs. 

Weakness is relatively broad today, with only the energy (+0.6%) and industrials (+0.3%) sectors trading higher.

The defensive consumer staples (-1.5%) and health care (-1.1%) sectors are among the worst performers after posting similar losses yesterday. 

The consumer discretionary sector (-1.2%) holds a comparable loss, with broad weakness and poor leadership from Amazon (AMZN 211.09, -4.11, -1.91%) outweighing solid post-earnings moves from lululemon athletica (LULU 167.97, +8.70, +5.46%) and Williams-Sonoma (WSM 192.87, +10.70, +5.87%).

Meanwhile, the top-weighted information technology sector (-0.4%) holds a more modest loss. Software stocks are underperforming, with the iShares GS Software ETF down 1.9%. 

Outside of the S&P 500, the Russell 2000 (-0.7%) holds a loss comparable to that of the major averages, while the S&P Mid Cap 400 (flat) is a relative outperformer. 

While today's weakness is broad, the major averages have been relatively rangebound after their initial retreat, suggesting that investors are awaiting the upcoming FOMC developments before making more decisive moves. So far, however, the combination of higher oil prices and disappointing inflation data has continued to weigh on the market’s rate-cut expectations.

Reviewing today's data:

• Weekly MBA Mortgage Applications Index -10.9%; Prior was revised to 3.2% from
• February PPI 0.7% (Briefing.com consensus 0.3%); Prior 0.5%, February Core PPI 0.5% (Briefing.com consensus 0.4%); Prior 0.8%
  
  • The key takeaway from the report is that the uptick in producer prices was seen in both goods (+1.1%) and services (+0.5%), and the added point is that this higher inflation occurred before the war with Iran and subsequent surge in energy prices, which will foment concerns about a worsening inflation situation.
• January Factory Orders 0.1%; Prior was revised to -0.4% from -0.7%
  
  • The key takeaway from the report is the tepid level of business spending in January, evidenced by the 0.1% increase in new orders for nondefense capital goods excluding aircraft.