Closing Market Summary: S&P 500 Ends Flat While Small Caps Lag
The stock market ended on a cautious note after enduring a sloppy session that lacked concerted sector leadership. The S&P 500 settled right below its flat line, while the Russell 2000 lost 0.5% after displaying intraday volatility.
Equities began the first session of May near their flat lines amid the lack of leadership from overseas as most global markets were closed for Labor Day. Despite the quiet open, small caps were active from the get-go as the Russell 2000 retreated as much as 1.1% during the first hour of action. The index halted its slide at the 200-day moving average (1113.73), which has been acting as an area of support since mid-April.
The subsequent reversal took place as fast as the early slide, placing the Russell 2000 ahead of the remaining indices. The late-morning strength began fading into the afternoon, which sent the small-cap index back towards its morning low.
Meanwhile, the S&P 500 spent the bulk of the afternoon within four points of its flat line as individual sectors traded in mixed fashion. Most notably, consumer discretionary (+0.4%) and utilities (+0.3%) outperformed throughout the session, with the utilities sector extending its 2014 advance to 14.0%.
For its part, the discretionary sector was boosted by media names amid reports indicating AT&T (T 35.58, -0.12) approached DirecTV (DTV 80.76, +3.16) about a potential $40 billion acquisition. Momentum names also served as support to the sector as Amazon.com (AMZN 307.89, +3.76), Netflix (NFLX 336.52, +14.48), and Priceline.com (PCLN 1180.60, +22.85) jumped between 1.2% and 4.5%.
Staying on the momentum theme, high-growth names also played a part in the outperformance of the Nasdaq Composite (+0.3%). High-beta listings held up well after Yelp (YELP 64.02, +5.70) reported better than expected earnings and revenue. Another measure of support came from the shares of Facebook (FB 61.15, +1.37), which rallied 2.3% after being added to the U.S. Focus List at Credit Suisse.
Elsewhere, biotechnology climbed, which also contributed to the Nasdaq's relative strength. The iShares Nasdaq Biotechnology ETF (IBB 232.50, +2.25) gained 1.0%, while the broader health care sector ended flat. The third-largest group saw an intraday spike amid reports Pfizer (PFE 31.15, -0.13) may up its bid for AstraZeneca (AZN 81.09, +2.04).
Also of note, the leading sector from April, energy (-0.4%), finished near the bottom of the leaderboard as top component (and Dow member) ExxonMobil (XOM 101.41, -1.00) weighed. The stock lost 1.0% after beating earnings estimates on below-consensus revenue.
On the fixed income side, Treasuries rallied throughout the session, which was a bit perplexing. The benchmark 10-yr yield fell to 2.61%, settling not far above its lowest close of the year (2.58%).
That move was supported in part by the weaker than expected initial claims report, but the interesting thing was that it held up in the wake of the stronger than expected ISM Index and in front of the April employment report on Friday. The continued buying interest in the benchmark note, which has been seen all year, isn't something one would expect to see if there was a strong belief that the economy is getting ready to hit escape velocity.
Participation was a bit below average as 682 million shares changed hands at the NYSE floor.
Looking back at today's data:
The initial claims level increased to 344,000 for the week ending April 26 from an upwardly revised 330,000 (from 329,000) for the week ending April 19. That was the highest initial claims reading since February, while the consensus expected the claims level to fall to 315,000. There were no special factors cited for the increase, but in all likelihood, the recent volatility has resulted from seasonal adjustment issues surrounding the Easter holiday.
Personal income increased 0.5% in March after increasing an upwardly revised 0.4% (from 0.3%) in February. The consensus expected income to increase 0.4%.
Personal spending also topped expectations, increasing 0.9% in March after increasing an upwardly revised 0.5% (from 0.3%) in February.
Core PCE prices increased 1.2% y/y and remain well below the Fed's 2.0% target.
The April Challenger Job Cuts report indicated a 6.0% year-over-year increase to follow the previous decline of 30.2%.
The ISM Manufacturing Index increased to 54.9 in April from 53.7 in March. The consensus expected the ISM Manufacturing Index to increase to 54.5. The gain in the ISM Index was in-line with the improvements reported in the regional Federal Reserve manufacturing surveys released throughout April.
Construction spending increased 0.2% in March after falling a downwardly revised 0.2% (from +0.1%) in February. The consensus expected construction spending to increase 0.4%. The extreme winter weather in January and February did not lead to a release in pent up demand, suggesting the weather effects may have been overstated.
Tomorrow, the Nonfarm Payrolls report for April (consensus 210,000) will be released at 8:30 ET, while March Factory Orders (consensus 1.6%) will be announced at 10:00 ET.
S&P 500 +1.9% YTD
Dow Jones Industrial Average -0.1% YTD
Nasdaq Composite -1.2% YTD
Russell 2000 -3.0% YTD