Closing Stock Market Summary: Buyer conviction picks up middayThe stock market opened lower and headed even lower after that. Buyer conviction picked up around midday, leaving the S&P 500 and Dow Jones Industrial Average with modest losses. The Nasdaq was able to climb just above the flat line to close in positive territory.
The weak start was owed to several factors:
- JPMorgan Chase (JPM 108.00, -3.91, -3.5%) and Morgan Stanley (MS 74.69, -0.29, +0.4%) reported weaker than expected results with JPM CEO Dimon repeating his warning about a difficult economic environment.
- The PPI report for June was hotter than expected at the headline level, fueling more speculation about a more aggressive Fed.
- There was renewed political turmoil in Italy after Prime Minister Draghi lost the support of a major coalition partner. Mr. Draghi submitted his resignation, but the country's president refused to accept the offer, suggesting that the prime minister will maintain his post despite flagging support. The renewed uncertainty could get in the way of the ECB's tightening plans.
The lower start sent the S&P 500 back to its low from three weeks ago, but that's where the market found support and rebounded thanks to strong leadership from the technology sector. Comments from Fed Governor Waller also contributed to the turn in sentiment after he said that his base case remains for a 75-bps rate hike, though he acknowledged that he would support a larger increase if it is warranted by economic data.
Aside from information technology (+0.9%), the other S&P 500 sectors to close in the green were consumer staples (+0.2%) and utilities (+0.01%). The technology sector got a boost today from semiconductor related names after Taiwan Semi (TSM 83.67, +2.38, +2.9%) beat on earnings and revenue and issued forward guidance above consensus.
As for the consumer staples sector, Costco (COST 511.94, +19.72, +4.0%) offered support after it was upgraded today to Buy from Hold at Deutsche Bank. Holding the sector down was Conagra (CAG 33.15, -2.59, -7.3%), one of the biggest laggards in the S&P 500 today, after the company issued-below consensus guidance.
The remaining nine sectors showed losses ranging from 0.1% (consumer discretionary) to 1.9% (financials).
The advance-decline line showed the midday pick up in buyer interest. Earlier, decliners led advancers by a nearly 9-to-1 margin at the NYSE and a roughly 4-to-1 margin at the Nasdaq. At the close, decliners led advancers by a 14-to-5 margin at the NYSE and a 2-to-1 margin at the Nasdaq.
Treasuries retreated in immediate reaction to the PPI report but most tenors found support above yesterday's lows, narrowing their losses as the day went on. The 10-yr yield rose six basis points to 2.96% while the 2-yr yield slipped one basis point to 3.12%.
More bank earnings will be released ahead of Friday's open with BlackRock (BLK 588.63, -7.75, -1.3%), Citigroup (C 44.14, -1.36, -3.0%), and Wells Fargo (WFC 38.74, -0.33, -0.8%) headlining the list. Major health care component UnitedHealth (UNH 502.43, +1.19, +0.2%) will also report its earnings tomorrow morning.
The market will receive a few more noteworthy economic reports on Friday:
- 8:30 a.m. ET: June Retail Sales (consensus 0.8%; prior -0.3%), Retail Sales ex-auto (consensus 0.6%; prior 0.5%), June Import/Export Prices, and July Empire State Manufacturing survey ( consensus -0.9; prior -1.2)
- 9:15 a.m. ET: June Industrial Production (Briefing.com consensus 0.2%; prior 0.2%) and Capacity Utilization (consensus 80.0%; prior 79.0%)
- 10:00 ET: May Business Inventories ( consensus 1.2%; prior 1.2%) and preliminary July University of Michigan Consumer Sentiment survey (Briefing.com consensus 49.4; prior 50.0)
Reviewing today's economic data:
- June PPI 1.1% (consensus 0.9%); Prior was revised to 0.9% from 0.8%; June Core PPI 0.4% ( consensus 0.5%); Prior was revised to 0.6% from 0.5%
- The key takeaway from the report is that inflationary pressures were most pronounced in the manufacturing sector due to higher energy prices, but the services sector also saw higher prices, coupled with an upward revision to the increase that was reported in May. The June report lifted the yr/yr PPI rate to 11.3%, leaving it just shy of the March peak (11.5%).
- Weekly Initial Claims 244K (consensus 239K); Prior 235K; Weekly Continuing Claims 1.331 mln; Prior was revised to 1.372 mln from 1.375 mln
- The key takeaway from the report is that while still low relative to longer-term averages, initial claims have been inching higher in steady fashion since they reached a low of 167,000 at the end of March and are now at their highest level since early February.
- Weekly EIA Natural Gas Inventories showed a build of 58 bcf vs a build of 60 bcf last week
- Dow Jones Industrial Average: -15.7% YTD
- S&P 400: -20.5% YTD
- S&P 500: -20.5% YTD
- Russell 2000: -24.0% YTD
- Nasdaq Composite: -28.1% YTD