Closing Stock Market Summary
Today's trade had an overall positive vibe in this lightly traded session ahead of the extended holiday weekend. Advancing issues had a roughly 2-to-1 lead over declining issues at both the NYSE and at the Nasdaq.
Market participants were digesting some economic releases today, which mostly fit with the soft landing narrative. The calendar was headlined by the November Personal Income and Spending report, which contained a healthy 0.4% increase in real disposable personal income, a 0.3% increase in real spending, and disinflation in both the PCE and Core PCE Price Indexes.
Durable goods orders were stronger than expected in November, and consumer sentiment increased while inflation expectations decreased in December.
The aforementioned reports overshadowed the disappointing 12.2% month-over-month decline in new home sales in November, although with the recent drop in mortgage rates, participants seemed willing to believe that sales activity will rebound smartly in December.
The three major indices traded with modest gains for most of the session, but hit an air pocket a little after 2:00 p.m. ET that brought the indices below yesterday's closing levels. The short-lived deterioration did not have a specific news catalyst to account for the activity. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), and Dow Jones Industrial Average (-0.1%) all climbed off their session lows, but the Dow couldn't manage a positive finish.
A big loss in NIKE (NKE 108.04, -14.49, -11.8%), which reported fiscal Q2 earnings and disappointing guidance, contributed to the relative underperformance of the DJIA.
NIKE's decline also weighed on the S&P 500 consumer discretionary sector (-0.7%), which was the only sector that closed lower today.
Meanwhile, economically-sensitive sectors and value stocks outperformed due to the positive sentiment around the economic outlook. The material (+0.6%) and industrial (+0.4%) sectors were among the winning standouts, and the Russell 3000 Value Index registered a 0.4% gain versus a 0.1% gain in the Russell 3000 Growth Index.
The health care (+0.5%) was another outperformer, propped up with some M&A activity that featured Bristol-Myers (BMY 52.29, +1.03, +2.0%) acquiring Karuna Therapeutics (KRTX 317.85, +102.66, +47.7%) for $330.00 per share in cash for a total equity value of $14.0 billion. The acquisition price is a 53% premium over Thursday's closing price for KRTX.
The 2-yr note yield settled unchanged from yesterday, and down ten basis points this week, to 4.33%. The 10-yr note yield rose one basis point today, and declined two basis points this week, to 3.90%.
As a reminder, markets are closed on Monday for Christmas Day.
- Nasdaq Composite: +43.3%
- S&P 500: +23.8%
- Russell 2000: +15.5%
- S&P Midcap 400: +14.7%
- Dow Jones industrial Average: +12.8%
Reviewing today's economic data:
- Personal income increased 0.4% month-over-month in November, as expected, following an upwardly revised 0.3% increase (from 0.2%) in October. Personal spending was up 0.2%, also as expected, following a downwardly revised 0.1% increase (from 0.2%) in October. The PCE Price Index declined 0.1% month-over-month (consensus 0.1%), taking the year-over-year change to 2.6% from 2.9% in October. That was the first decline in the PCE Price Index since 2020. The core PCE Price Index, which is the Fed's preferred inflation gauge, increased 0.1% month-over-month (consensus 0.2%), taking the year-over-year change to 3.2% from 3.4%.
- The key takeaway from the report is that it threads the needle for a Fed aiming to bring down inflation with higher rates, but not tank the economy in the process. The 0.3% month-over-month jump in real PCE combined with a 0.4% increase in real disposable personal income and the disinflation in the PCE Price Indexes is the stuff that soft landings/no landings are made of.
- Durable goods orders surged 5.4% month-over-month in November ( consensus 2.5%) following an upwardly revised 5.1% decline (from -5.4%) in October. Excluding transportation, durable goods orders were up 0.5% month-over-month (consensus 0.2%) following a downwardly revised 0.3% decline (from 0.0%) in October.
- The key takeaway from the report was found in the reading for nondefense capital goods orders excluding transportation -- a proxy for business spending. It was up 0.8% month-over-month on the heels of a 0.6% decline in October, connoting a welcome reacceleration in order activity that will mesh with a soft landing outlook.
- The final reading for the University of Michigan Consumer Sentiment Index for December came in at 69.7 (Bconsensus 69.7) versus the preliminary reading of 69.4. That was up nicely from the final reading of 61.3 for November, and it marked a recovery of all declines from the previous four months. In the same period a year ago, the index stood at 59.8.
- The key takeaway from the report is the linkage between the increase in sentiment and the decrease in inflation expectations. The latter set the tone for improved attitudes across age, income, education, geography, and political identification.
- New home sales decreased 12.2% month-over-month in November to a seasonally adjusted annual rate of 590,000 units (consensus 689,000) from a downwardly revised 672,000 (from 679,000) in October. On a year-over-year basis, new home sales were up 1.4%.
- The key takeaway from the report is that new home sales activity slumped badly in November, paced by the largest region for new home sales (the South) where prices are generally more affordable. The weakness speaks to supply constraints for lower-priced homes and general affordability constraints created by high mortgage rates and high prices relative to median prices for existing homes.
Tuesday's economic calendar features:
- 9:00 ET: October FHFA Housing Price Index (Prior 0.6%); October S&P Case-Shiller Home Price Index (Prior 3.9%)