Closing Market Summary: Stocks Slump as Treasuries Jump
Equities finished the Thursday session with broad-based losses after spending the entire day in the red. The S&P 500 settled lower by 0.9% with nine sectors registering losses, while the Russell 2000 lost 0.7% after being down as much as 1.9%.
Stocks slumped out of the gate with small caps leading the early slide even though the economic data that was reported ahead of the open was mostly better than expected. To be fair, a couple data points did miss expectations, but the first batch that included above-consensus weekly initial claims, in-line CPI, and the better than expected Empire Manufacturing Survey was met with a rally in the Treasury market.
Treasuries spiked into the green after the three economic reports crossed the wires, and continued their rally into the late morning. The 10-yr note added 13 ticks, pressuring its yield five basis points to 2.50%, after marking a session low at 2.47%. The benchmark yield ended today's session down 12 basis points for the week.
The continued strength in Treasuries weighed on the overall sentiment, causing participants to reduce their risk exposure. Fittingly, with Treasuries signaling unease about the strength of economic growth, today's weakest sectors came from the cyclical side.
Out of the six growth-sensitive sectors, four posted losses larger than the broader market. Energy, financials, industrials, and materials lost between 1.0% and 1.5%, while consumer discretionary (-0.7%) and technology (-0.8%) outperformed.
The consumer discretionary sector lagged for the better part of the session, but was able to reclaim a portion of its losses during the afternoon. Homebuilders held up relatively well, which was likely a function of lower yields. The iShares Dow Jones US Home Construction ETF (ITB 23.09, -0.07) shed 0.3%.
Elsewhere, the technology sector was underpinned by the shares of Cisco Systems (CSCO 24.18, +1.37), which rallied 6.0% in reaction to better than expected earnings and revenue. Chipmakers, however, could not keep pace with the sector as the PHLX Semiconductor Index fell 1.2%.
Things looked a bit better on the countercyclical side as this month's leading sector—telecom services (+0.2%)—extended its May advance to 2.8%, while the utilities space (-0.4%) posted a modest loss. The other two defensive groups registered losses that were more in line with the S&P 500. Health care (-1.0%) lagged, while the consumer staples sector (-0.9%) kept pace with the broader market even as its top component—Wal-Mart (WMT 76.83, -1.91)—weighed. The retail giant tumbled 2.4% after reporting disappointing results, coupled with cautious guidance.
Today's selloff invited above-average participation as 732 million shares changed hands at the NYSE, representing the highest total since last Wednesday.
Economic data was plentiful and mostly better than expected:
The initial claims level fell below 300,000 to 297,000 for the week ending May 10 from an upwardly revised 321,000 (from 319,000) for the week ending May 3. The consensus expected the initial claims level to increase to 325,000. According to the Department of Labor, there were no special factors that caused the initial claims level to fall unexpectedly to its lowest level since May 2007.
Consumer prices increased 0.3% in April, up from a 0.2% increase in March. The consensus expected the CPI to increase 0.3%. Food prices increased 0.4% for a fourth consecutive month. A big increase in producer food prices in April will likely pass through to consumers and keep upward pressure on the CPI food index. Energy costs, which fell 0.1% in March, increased 0.3% in April. Excluding food and energy, core CPI increased 0.2% for a second consecutive month in April, matching consensus expectations.
The Empire Manufacturing Survey for May registered a reading of 19.0, which was up from the prior month's reading of 1.3. Economists polled by expected the survey to improve to 4.8.
The March net long-term TIC flows report indicated an $85.70 billion inflow of foreign capital into U.S. denominated assets. This followed the prior month's revised $90.30 billion inflow.
Industrial production declined 0.6% in April after increasing an upwardly revised 0.9% (from 0.7%) in March. The consensus expected industrial production to be flat in April. As expected, warmer weather conditions reduced the need for utilities consumption. Output/production in utilities fell 5.3% in April after increasing 0.6% in March.
The Philadelphia Fed's Business Outlook showed a slight deceleration in manufacturing growth in May. The diffusion index fell to 15.4 from 16.6 in April. The Briefing.com consensus expected the index to fall to 9.1.
The May NAHB Housing Market Index fell to 45 from 46, while the consensus expected the reading to increase to 48.
Tomorrow, Housing Starts (consensus 975,000) and Building Permits (consensus 1.008 million) for April will be released at 8:30 ET, while the preliminary Michigan Consumer Sentiment survey (expected 84.5) will be announced at 9:55 ET.
S&P 500 +1.2% YTD
Dow Jones Industrial Average -0.8% YTD
Nasdaq Composite -2.6% YTD
Russell 2000 -5.6% YTD