Closing Stock Market SummaryThe S&P 500 gained 1.2% on Thursday, as investors bought the dip in most areas of the market following a rough three-day stretch. The Dow Jones Industrial Average (+1.3%) and Russell 2000 (+1.7%) outperformed the benchmark index, while the Nasdaq Composite trailed with a 0.7% gain.
Buying efforts were attributed to several factors: 1) a view that conditions were ripe for a bounce after the S&P 500 fell 4.0% over the past three sessions, 2) a retracement in long-term interest rates despite hot inflation data and encouraging weekly claims data, 3) Apple (AAPL 124.97, +2.20, +1.8%) reclaiming its 200-day moving average (123.12), and 4) the CDC saying fully vaccinated people can partake in most activities without masks.
The CDC recommendation provided renewed steam for a rebound rally that was losing its luster. The Nasdaq, for instance, had squandered an early 1.7% gain and dipped into negative territory prior to the news. It never got back to those levels, but the Dow and S&P 500 set session highs later in the day.
Within the S&P 500, the gains were spread to ten of its 11 sectors. The industrials (+1.9%), financials (+1.9%), and utilities (+1.8%) sectors rounded out the top spots. The information technology sector rose 1.4%.
Buying interest, however, evaded the S&P 500 energy sector (-1.4%) and the more speculative growth stocks, particularly those within the ARK Innovation ETF (ARKK 99.48, -2.68, -2.6%). Energy stocks were clipped by weaker oil prices ($63.82/bbl, -2.13, -3.2%) and weaker RBOB gasoline prices ($2.09/gal, -0.07, -3.3%).
The disappointing performance of the ARK Innovation ETF, which was up as much as 2.5% in early action, highlighted the preference toward the higher quality growth stocks like Apple in this uncertain trading environment.
Separately, the demand for longer-dated Treasuries was somewhat peculiar since the Producer Price Index (PPI) rose 0.6% m/m (consensus +0.3%) and weekly initial claims declined to a new post-pandemic low at 473,000 (consensus 510,000). Core PPI, which excludes food and energy, rose 0.7% m/m (consensus +0.4%).
Yesterday's hot CPI report presumably had the market expecting headline surprises, and Fed Governor Waller (FOMC voter) reiterated the Fed's view that inflation pressures should be transitory. The 10-yr yield decreased three basis points to 1.67% while the 2-yr yield was unchanged at 0.16%. The U.S. Dollar Index was little changed at 90.70.
Reviewing Thursday's economic data:
- The PPI for final demand increased 0.6% month-over-month (consensus +0.3%) while the index for final demand, less foods and energy ("core PPI"), increased 0.7% month-over-month (consensus +0.4%). That left the year-over-year increases at 6.2% and 4.1%, respectively, with base effects very much in the picture there. Still, the month-over-month increases are not a function of low base effects.
- The key takeaway from the report is that there is evident, and more current, price pressures for producers that threaten profit margin expansion if they are not passed along to customers. Over the last six months, when low base effects were not the same convenient excuse, the PPI for final demand has increased at an annualized rate of 7.4%.
- For the week ending May 8, initial jobless claims decreased by 34,000 to 473,000 ( consensus 510,000), marking their lowest level since March 14, 2020. Continuing claims for the week ending May 1 decreased by 45,000 to 3.655 million.
- The key takeaway from the report is that jobless claims remain high in absolute terms, yet continue to trend in the right direction that is consistent with recovery-minded views.
Looking ahead, key reports will include Retail Sales for April, Industrial Production and Capacity Utilization for April, and the preliminary University of Michigan Index of Consumer Sentiment for May on Friday.
- Dow Jones Industrial Average +11.2% YTD
- Russell 2000 +9.9% YTD
- S&P 500 +9.5% YTD
- Nasdaq Composite +1.8% YTD