Closing Stock Market SummaryToday's trade was mostly mixed. The Dow Jones Industrial Average spent most of the session in negative territory while the Nasdaq and S&P 500 outperformed, supported by gains in the mega cap space.
Price action was somewhat tepid today until a rebound effort took root in the afternoon when the S&P 500 briefly slipped below the 4,100 level. Ultimately, the Nasdaq and S&P 500 closed comfortably above unchanged levels. Mega cap stocks offered integral support to the broader market, leaving the Vanguard Mega Cap Growth ETF (MGK) up 1.1% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat and the market-cap weighted S&P 500 rose 0.5%.
Alphabet (GOOG 112.28, +4.34, +4.0%) was a big driver of the mega cap outperformance, as it rallied amidst the company's presentation at its Developers Conference, which included updates on its AI initiatives.
Initially, market participants reacted favorably to the April Consumer Price Index (CPI), but a closer look fostered uncertainty about the Fed's policy path. Total CPI was up 4.9% year-over-year in April, down from 5.0% in March, which marks the sub-5.0% reading in two-years. Core-CPI, which excludes food and energy, was up 5.5% year-over-year in April, down from 5.6% in March.
Presumably, the April CPI report will sway the Fed to entertain holding the target range for the fed funds rate steady at 5.00-5.25% at its June meeting, but importantly, a 5-handle on core-CPI isn't going to sway the Fed to think it needs to cut rates anytime soon.
That understanding, along with ongoing concerns about the debt ceiling and a possible hard landing for the economy, kept the market in check through most of the session.
In the early going, continued softness in the regional bank space had been another limiting factor. Some of the pressure there dissipated by the close with some regional bank shares coming along for the rally. The SPDR S&P Regional Banking ETF (KRE) had been down as much as 2.2%, but closed with a 1.0% loss. Western Alliance (WAL 27.48, +0.53, +2.0%) squeezed out a slim gain while PacWest (PACW 6.08, -0.03, -0.5%), which saw a loss of 5.4% at its low, closed with a modest 0.5% decline.
Still, the S&P 500 financials sector (-0.6%) closed near the bottom of the pack, along with industrials (-0.3%). The energy sector (-1.2%) saw the biggest decline as oil prices fell due to growth concerns. WTI crude oil futures fell 1.6% to $72.56/bbl.
The communication services sector (+1.7%) was the best performer by a decent margin thanks to the gain in Alphabet. The information technology (+1.2%) and real estate (+1.0%) sectors were also top performers.
Treasuries settled with gains across the curve. The 2-yr note yield fell 10 basis points to 3.90% and the 10-yr note yield fell eight basis points to 3.44%.
- Nasdaq Composite: +17.6% YTD
- S&P 500: +7.8% YTD
- Dow Jones Industrial Average: +1.2% YTD
- S&P Midcap 400: +0.8% YTD
- Russell 2000: -0.1% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 6.3% with refinancing applications jumping 10% and purchase applications rising 5%.
- Total CPI was up 0.4% month-over-month ( consensus +0.4%) and up 4.9% year-over-year, versus up 5.0% in March. Core-CPI, which excludes food and energy, was also up 0.4% month-over-month (consensus +0.3%) and up 5.5% year-over-year, versus up 5.6% in March.
- The index for shelter (+0.4%) was the largest contributor to the increase in total CPI and core-CPI; however, the 0.4% increase was the smallest increase for the shelter index since January 2022.
- The key takeaway from the report as far as the market is concerned is that the moderation in inflation, coupled with the moderation in the shelter index, should at least spur the Fed to entertain keeping its policy rate on hold when it meets again in June.
- The weekly EIA crude oil inventories data showed a build of 2.95 million barrels after last week's draw of 1.28 million barrels.
- The April Treasury Budget showed a surplus of $176.2 billion compared to a surplus of $308.2 billion in the same period a year ago. The Treasury Budget data is not seasonally adjusted so the April 2023 figure cannot be compared to the March 2023 figure. The surplus in April was the result of receipts ($638.5 billion) exceeding outlays ($462.3 billion).
- The key takeaway from the report is that individual income and corporate tax receipts combined were $461.5 billion, which was 32.3% less than April 2022.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: April PPI ( consensus 0.3%; prior -0.5%), Core PPI ( consensus 0.3%; prior -0.1%), weekly Initial Claims ( consensus 247,000; prior 242,000), and Continuing Claims (prior 1.805 mln)
- 10:30 ET: Weekly natural gas inventories (prior +54 bcf)