Closing Market Summary: Rate Outlook Weighs for Second DayThe stock market ended the Thursday affair on a lower note as investors continued adjusting their expectations for the speed and path of interest rate normalization. That adjustment boosted the dollar, weighed on commodities, and resulted in the underperformance of the heavyweight industrial (-1.0%), financial (-0.9%), and health care (-0.8%) sectors. The Nasdaq Composite (-0.6%) ended its day behind the Dow Jones Industrial Average (-0.5%) and the S&P 500 (-0.4%).
Equities began their day lower as hawkish commentary from April's FOMC minutes pressured global bourses. The minutes indicated that a June rate hike remains in the realm of possibilities, so long as incoming data remains consistent with a projected pick-up in economic activity for the second quarter. As a result, markets assumed a risk off posture while strength in the dollar weighed on dollar-denominated commodities.
The major averages followed oil lower this morning as the energy component yielded to profit taking. Equities carved out session lows at midday as participants digested remarks from New York Fed President and FOMC voter William Dudley. President Dudley offered little new commentary, but reaffirmed that June is a "live" meeting and that the market had previously underestimated the likelihood of further rate hikes.
The major averages lifted from their lows through the afternoon as heavily-weighted industrials (-1.0%), financials (-0.9%) and health care (-0.8%) trimmed their intraday losses. Furthermore, WTI crude ticked off its low as it ended the day with a loss of 0.2% ($48.65/bbl).
Four sectors finished above their flat lines with countercyclical utilities (+0.9%) and consumer staples (+0.8%) leading materials (+0.4%) and energy (+0.3%). On the flipside, industrials (-1.0%), financials (-0.9%), and health care (-0.8%) ended with the largest losses.
The financial sector (-0.9%) demonstrated broad-based weakness as it pulled back from yesterday's 1.9% gain. Dow component Goldman Sachs (GS 154.70, -5.24) ended its day at the bottom of the price-weighted index after gaining 3.4% yesterday. Elsewhere, real estate investment trusts (REITs) extended their recent downturns as the sub-group responded to a higher likelihood of interest rate hikes in the short term.
In the industrial space (-1.0%), airlines underperformed as reports speculated as to the cause of a crashed EgyptAir flight. The U.S. Global Jets ETF (JETS 22.83, -0.31) ended its day lower by 1.3%. Meanwhile, rail names also displayed weakness after Credit Agricole offered bearish coverage on the sector's mainstays.
The high-beta chipmakers underperformed in the technology group (-0.6%), evidenced by the 0.7% decline in the PHLX Semiconductor Index. Meanwhile, Cisco Systems (CSCO 27.57, +0.85) and Salesforce.com (CRM 81.09, +3.22) gained a respective 3.7% and 4.0% after offering better than expected quarterly results.
In the consumer staples space (+0.8%), Dow component Wal-Mart (WMT 69.20, +6.05) topped the price-weighted index after beating analysts' estimates for the quarter. The retailer's suppliers also saw some interest as Clorox (CLX 129.98, +1.84) and Kraft Heinz (KHC 83.00, +1.82) trimmed their respective weekly losses to 1.5% and 2.5%.
The U.S. Dollar Index (95.33, +0.25) ended its session off its high as the euro/dollar pair finished at 1.1198 (-0.2%) while the dollar lost 0.2% against the yen (109.97).
The Treasury complex finished its day modestly higher with the yield on the 10-yr note slipping one basis point to 1.85%. Elsewhere, the yield on the 2-yr note finished at 0.88% (-2 bps), representing a ten basis point move from April's settlement.
Today's volume was above the recent average as more than 923 million shares changed hands on the NYSE floor.
Today's economic data included weekly initial claims, the Philadelphia Fed Survey for May, and April Leading Indicators:
- Initial claims for the week ending May 14 decreased by 16,000 to 278,000 (consensus 278,000).
- The four-week moving average for initial claims increased by 7,500 to 275,750.
- There were reportedly no special factors influencing initial claims, which stayed below 300,000 for the 63rd straight week -- a streak not seen since 1973.
- Continuing claims for the week ending May 7 decreased by 13,000 to 2.152 million.
- The four-week moving average bumped up slightly to 2.143 million, yet that remains within a few hairs of the lowest level for that average since November 2000.
- The Philadelphia Fed Index registered a reading of -1.8 for May (consensus 2.7).
- That was a slight deterioration from the April reading of -1.6 and marked the eighth negative reading in the last nine months.
- A number below zero for this regional manufacturing survey connotes contraction
- The survey's indicators for general activity, new orders, shipments, and employment all remained negative.
- The diffusion index for future general activity, meanwhile, fell from a 15-month high of 42.2 in April to 36.1 in May.
- The Conference Board's Leading Economic Index increased 0.6% in April after a downwardly revised unchanged reading (from +0.2%) for March.
- That April number was comfortably above the consensus estimate of 0.3% and was the largest monthly increase since April 2015.
- The uptick was fueled by positive contributions from all indicators, with the exception of consumer expectations. The latter subtracted 0.05 percentage points.
- The biggest contributors in April were the average workweek (0.13 percentage points), average weekly initial claims (0.11 percentage points), building permits (0.11 percentage points), and stock prices (0.10 percentage points).
- Positive contributions were estimated for both manufacturers' new orders for consumer goods and materials (0.01 percentage points) and nondefense capital goods orders excluding aircraft (0.04 percentage points).
- Notably, growth in the Leading Economic Index for the six-month period ending April 2016 moderated to 0.6% from the 1.3% growth rate seen over the previous six months; however, the Conference Board clarified that the strengths among the leading indicators have become more widespread than the weaknesses.
- The Coincident Economic Index increased 0.3% in April after being unchanged in March while the Lagging Index increased 0.3% on the heels of a 0.5% increase in March.
Tomorrow's economic data will be limited to April Existing Home Sales (consensus 5.40 million), which will be released at 10:00 ET.
- Nasdaq Composite -5.9% YTD
- Russell 2000 -3.3% YTD
- S&P 500 -0.2% YTD
- Dow Jones +0.1% YTD