Closing Market Summary: Stocks Slide as Transports Lag Again
The stock market ended the Thursday session on a broadly lower note after spending the entire trading day in the red. The S&P 500 fell 0.7% with eight sectors posting losses, while the Nasdaq (-0.8%) underperformed.
Equities slumped out of the gate following some disappointing economic data and reports of skirmishes in northern Iraq. The disappointing economic news pertained to the retail sector as retail sales increased just 0.3% (consensus 0.7%), while core retail sales, which closely match the consumption component of GDP, slipped 0.1% in May.
Separately, reports of intensifying battles in northern Iraq led by a breakaway militant group of Al-Qaeda raised concerns about the oil supply.
The headlines out of Iraq put a bid in the oil market (+2.1% to $106.54/bbl) while also creating a residual concern that higher energy prices will be an added tax on consumers who, broadly speaking, continue to be pinched by limited wage growth. Fittingly, the worries translated into relative weakness for the consumer discretionary sector (-1.3%), which ended at the bottom of the leaderboard.
Discretionary shares suffered from broad weakness among homebuilders and retailers. The iShares Dow Jones US Home Construction ETF (ITB 23.99, -0.24) lost 1.0%, while SPDR S&P Retail ETF (XRT 84.41, -1.15) tumbled 1.3%, extending its year-to-date loss to 4.2%.
Higher energy prices also pressured industrials (-1.3%), and specifically, transport stocks. The Dow Jones Transportation Average tumbled 2.0% with all 20 components ending in the red. Of the 20 listings, 16 posted losses larger than 1.0% with airlines leading the weakness. Delta Air Lines (DAL 38.50, -2.21) and United Continental (UAL 42.60, -2.66) fell 5.4% and 5.9%, respectively.
With transports unable to stage a bounce, the last hope for a rebound hinged on the performance of high-growth names. Small caps displayed relative strength in the morning, but an afternoon fade sent the Russell 2000 and the Nasdaq Composite to fresh lows.
The tech-heavy Nasdaq ended behind the remaining major averages due to afternoon weakness in biotechnology and chipmakers. The iShares Nasdaq Biotechnology ETF (IBB 247.83, -1.20) and PHLX Semiconductor Index posted respective losses of 0.5% and 0.3% despite showing intraday strength.
On the upside, energy (+0.3%) and utilities (+0.3%) finished modestly higher, extending their year-to-date gains to 8.6% and 10.3%, respectively.
Also of note, Treasuries enjoyed a strong day with the move flowing from some safe-haven positioning, some disappointment over the retail sales data, and some surprise at the strength of the 30-yr bond auction. The latter saw a bid-to-cover ratio of 2.69 (12-auction average was 2.35) and the highest takedown by indirect bidders (51.7%) since 2006. The benchmark 10-yr note, meanwhile, added 14 ticks, sending its yield lower by five basis points to 2.59%.
Participation left a bit to be desired as only 610 million shares changed hands at the NYSE.
Investors received several data points:Tomorrow, May PPI ( consensus 0.2%) and core PPI (consensus 0.1%) will be reported at 8:30 ET, while the June Michigan Sentiment survey (consensus 82.9) will be released at 9:55 ET.
- There weren't any major surprises with the initial claims report for the week ending June 7. It showed claims increasing by 4,000 to 317,000. That was roughly in-line with the consensus estimate, which was pegged at 315,000. The four-week moving average for this series jumped by 4,750 to 315,250. The Department of Labor clarified that there were no special factors impacting this week's initial claims, which continue to point to nonfarm payrolls growth in the neighborhood of 200,000.
- Continuing claims for the week ending May 31 increased by 11,000 to 2.614 mln, which was better than the Briefing.com consensus estimate of 2.638 mln.
- Total retail sales for May increased 0.3%. Excluding autos, they were up 0.1%. Those results were below the Briefing.com consensus estimates, which called for increases of 0.7% and 0.4%, respectively. That is the disappointing news. The offsetting news is that there were large upward revisions for April. Specifically, total retail sales in April were revised up to 0.5% from 0.1% while sales, excluding autos, were revised up to 0.4% from 0.0%.
- Export prices, excluding agriculture, rose 0.1% in May after decreasing 1.2% in the prior reading. Excluding oil, import prices were unchanged, which followed last month's unchanged reading.
- April business inventories rose 0.6%, while the Briefing.com consensus expected an uptick of 0.4%. This followed the prior month's unrevised increase of 0.4%.
- S&P 500 +4.4% YTD
- Nasdaq Composite +2.9% YTD
- Dow Jones Industrial Average +1.0% YTD
- Russell 2000 -0.4%