Stock Market Update

[BRIEFING.COM] Microsoft (MSFT 454.68, +64.14, +16.42%) and Meta Platforms (META 530.94, -54.67, -9.34%) reported their quarterly results after yesterday's close. The two stocks have diverged today, but the market has been following Microsoft. 

The Dow component is at the heart of a 4.9% gain for the information technology sector. Meanwhile, healthy earnings results from chip equipment maker Lam Research (LRCX 298.40, +46.04, +18.25%) have energized the semiconductor stocks, which are pumping more blood into the sector. The Philadelphia Semiconductor Index is up 7.8%.

This outperformance has been the story of the day, overshadowing the U.S.-Iran conflict, reports of hedge fund Situational Awareness being forced to sell its entire book of public investments, and a trove of economic data that was generally supportive of an economy operating in an expansion mode while dealing with an ongoing inflation problem.

The latter is a concerning factor for the Treasury market, but it was tempered somewhat by a deceleration in the year-over-year rate of PCE inflation (from 4.1% to 3.7%) and core-PCE inflation (from 3.4% to 3.3%) in June. It would be a stretch, however, to say the Treasury market felt true relief over this report, considering that the inflation rates remain well above the hard 2.0% inflation target identified yesterday by Fed Chair Warsh.

In any case, the 10-yr note yield, at 4.66%, is down five basis points from its overnight high of 4.71%. That move has created an opening of sorts for buy-the-dip action in growth stocks, which are outperforming their value counterparts in a big way today.

Those gains have played well for the standing of the major indices, but today's advance is not a broad-based affair. Seven of the 11 S&P 500 sectors are trading lower, led by communication services (-2.8%), consumer staples (-2.4%), and health care (-1.7%).

The consumer discretionary sector, led by Amazon (AMZN 238.44, +11.79, +5.20%), which reports after the close, along with Apple (AAPL 331.71, -6.48, -1.92%), is the other sector standout on the winning side of things. 

Reviewing today's data:

• The Advance Q2 GDP report showed real GDP increasing at an annual rate of 1.5% (Briefing.com consensus: 2.3%) on the heels of a 2.1% increase for Q1. The GDP Price Index increased by a whopping 6.3% (Briefing.com consensus: 3.7%) following a 3.6% increase in Q1.
  • While the headline GDP print is a bit disappointing, it is not as soft as it appears knowing that net exports subtracted 1.01 percentage points. The bright spot was the pickup seen in personal spending (+3.2% from +0.5%) and final sales to private domestic purchasers (+3.9% from +1.7%).
• Initial jobless claims for the week ending July 25 increased by 9,000 to 197,000 (Briefing.com consensus: 203,000). Continuing jobless claims for the week ending July 18 decreased by 7,000 to 1.782 million.
  • The key takeaway from the report is initial claims remaining below 200,000, which is an historically low level and indicative of a solid labor market where layoff activity is quite low.
• Personal income increased 0.2% month-over-month in June (Briefing.com consensus: 0.3%), personal spending jumped 0.3% (Briefing.com consensus: 0.4%), the PCE Price Index was down 0.1% (Briefing.com consensus: -0.1%), and the core-PCE Price Index rose 0.1% (Briefing.com consensus: 0.2%). On a year-over-year basis, the PCE Price Index was up 3.7% versus 4.1% in May, and the core-PCE Price Index was up 3.3% versus 3.4% in June.
  • The key takeaway from the report, taking into account Fed Chair Warsh's demonstrative statement that the Fed doesn't have a soft inflation target but a hard target of 2.0%, is that the PCE Price Index remains well above 2.0%.