Closing Market Summary: Dollar and Rates Pressure StocksThe stock market ended the Tuesday affair on a lower note as rising interest rates and a stronger dollar pressured the major averages. The S&P 500 (-0.5%) finished in-line with the Dow Jones Industrial Average (-0.5%) and behind the Nasdaq Composite (-0.2%).
Equity indices began the day on a choppy note as renewed Brexit concerns continued to plague the foreign exchange market. Sterling fell 0.9% against the greenback (1.2726) after UK Prime Minister Theresa May reminded investors that the UK remains on course to invoke Article 50 of the Lisbon Treaty by the end of March 2017. The pound notched a new 31-year low (1.2720) against the dollar, which in turn helped support the UK's FTSE (+1.2%). Weakness in cable also led to an early downturn in the euro, which contributed to gains in European bourses.
The single currency reversed course near midday when reports indicated that the European Central Bank is nearing a consensus on tapering its quantitative easing program ahead of its planned conclusion. Recall that the ECB contributed to rate jitters in September when President Mario Draghi indicated that an extension of the asset purchase program past March 2017 was not discussed at the most recent policy meeting. The euro/dollar pair rallied to the 1.1240 price level before erasing its gain. The single currency ended lower by 0.1% against the dollar (1.1202).
The news of potential tapering on the horizon led to a downturn in sovereign bonds, which boosted rates globally. Defensively-oriented sectors extended early losses as participants unwound some crowded trades in real estate (-1.6%), telecom services (-1.7%), and utilities (-2.2%). The benchmark index rallied in the final hour of trade, narrowing its loss to 0.5%. Heavily-weighted financials (+0.3%) finished with the only gain.
The financial sector (+0.3%) led the advance as steepening in the yield curve boosted earnings prospects for the group. Richmond Fed President Jeffrey Lacker, who is not an FOMC voter, kept the rate hike conversation alive, saying that the fed funds rate should be higher given current inflation and unemployment rates. Mr. Lacker also advocated pre-emptive rate hikes in order to sustain economic stability. The SPDR S&P Bank ETF (KBE 33.54, +0.31) finished higher by 0.9%. Conversely, Wells Fargo (WFC 43.75, -0.08) ended behind the group after reports indicated that fraudulent account activity may have impacted small business owners in addition to consumer banking customers.
In the technology sector (-0.2%), Dow component Apple (AAPL 113.00, +0.48) displayed relative strength, advancing 0.4%. Fellow heavyweight Alphabet (GOOG 776.43, +3.87) also outperformed after its recent hardware launch event. The tech giant unveiled a number of devices including new smartphones and a smart home hub. The high-beta chipmakers finished slightly behind the broader sector, evidenced by the 0.3% loss in the PHLX Semiconductor Index. Micron (MU 17.80, +0.07) finished ahead of the price-weighted index as participants looked forward to the company's earnings release this evening.
The consumer staples sector (-0.9%) underperformed as defensively-oriented groups remained pressured by rising rates. Dollar Tree (DLTR 76.43, -3.10) declined 3.9% after being downgraded to "Neutral" from "Buy" at Cleveland Research. Meanwhile, Dr Pepper Snapple (DPS 86.86, -3.90) fell 4.3% after being downgraded to "Hold" from "Buy" at Evercore ISI. The broader sector extended its weekly loss to 1.5%.
Treasuries finished near their worst levels as yields rose through the curve. The yield on the 2-yr note increased two basis points (0.82%) while the yield on the benchmark 10-yr note rose six basis points (1.69%).
Today's participation was above the recent average as more than 876 million shares changed hands on the NYSE floor.
There was no economic data of note released today.
Tomorrow's economic data will include the 7:00 ET release of the weekly MBA Mortgage Index. Meanwhile, the ADP Employment Change Report for September (consensus 171k) and the August Trade Balance (consensus -39.1 billion) will be released at 8:15 ET and 8:30 ET, respectively. The day's data will be capped off with Factory Orders for August (consensus 0.1%) and ISM Services for September (consensus 52.8), which will cross the wires at 10:00 ET.
- Russell 2000: +9.1% YTD
- Nasdaq: +5.6% YTD
- S&P 500: +5.2% YTD
- Dow Jones: +4.3% YTD