Closing Stock Market SummaryThe stock market started, and ended, today's session on a decidedly downbeat note. The negative bias was in response to a higher-than-expected Producer Price Index (PPI) number for January, paired with another remarkably low level of weekly initial jobless claims, which fueled concerns that the Fed will not pause its rate hikes in the near future.
The main indices sank shortly after the open, but there was a fairly strong recovery effort taking place throughout most of the session. The recovery coincided with buyers stepping in when the S&P 500 breached the 4,100 level, along with Treasury yields backing down from their post-data release highs.
There was a sharp reversal in the last hour of trading that had the major indices close the session at or near their worst levels of the day, which took the S&P 500 below 4,100 again. The late afternoon plunge was precipitated by St. Louis Fed President James Bullard (not an FOMC voter) saying that he wouldn't rule out supporting a 50-basis point rate hike at the March FOMC meeting, adding that he advocated for a 50-basis point rate hike at the February 1 meeting, according to Bloomberg.
To be fair, the initial recovery effort happened after Cleveland Fed President Mester (not an FOMC voter) said earlier today that she, too, was advocating for a 50-basis point rate hike at the February 1 meeting. Nonetheless, the stock market used Mr. Bullard's position as an excuse to rein in some of its recovery enthusiasm.
The subsequent retreat was broad in nature. Declining issues outpaced advancing issues by a nearly 3-to-1 margin at the NYSE and a 2-to-1 margin at the Nasdaq. All 11 S&P 500 sectors registered losses that ranged from 0.8% (consumer staples) to 2.2% (consumer discretionary).
The weight of the mega cap stocks dragged on the broader market in the final hour of trading. The Vanguard Mega Cap Growth ETF (MGK) was down 2.0% versus a 1.1% loss in the Invesco S&P 500 Equal Weight ETF (RSP).
There was some underlying strength in individual companies that pleased investors with earnings and/or guidance. Twilio (TWLO 75.45, +9.40, +14.2%), Roku (ROKU 70.57, +7.08, +11.2%), and Cisco (CSCO 50.99, +2.54, +5.2%) were standouts in that regard.
The 2-yr note yield, which stood at 4.60% before today's data was released, settled the session up three basis points at 4.63% after hitting 4.68% immediately following this morning's releases. Similarly, the 10-yr note yield went from 3.79% to 3.86% following the data and settled the session up three basis points at 3.84%. Yields continued to creep higher following today's settlement and stood at 4.67% and 3.86%, respectively, as of this writing.
- Nasdaq Composite: +13.3% YTD
- Russell 2000: +10.3% YTD
- S&P Midcap 400: +9.9% YTD
- S&P 500: +6.5% YTD
- Dow Jones Industrial Average: +1.7% YTD
Reviewing today's economic data:
- January Housing Starts 1.309 mln (consensus 1.355 mln); Prior was revised to 1.371 mln from 1.382 mln; January Building Permits 1.339 mln (consensus 1.350 mln); Prior was revised to 1.337 mln from 1.330 mln
- The key takeaway from the report was the lack of growth in both single-family starts (-4.3%) and permits (-1.8%), which is a reflection of the adverse impact of rising interest rates and ongoing inflation pressures that are crimping builders' willingness to build new homes and buyers' willingness to purchase new homes due to affordability constraints.
- January PPI 0.7% (consensus 0.4%); Prior was revised to -0.2% from -0.5%; January Core PPI 0.5% .com consensus 0.3%); Prior was revised to 0.3% from 0.1%
- The key takeaway from the report for the market is that headline inflation was hotter than expected on a monthly basis. That will stoke worries about inflation pressures persisting at higher levels for longer than expected -- and the Fed keeping rates higher for longer -- even though there was improvement on a year-over-year basis.
- Weekly Initial Claims 194K (consensus 203K); Prior was revised to 195K from 196K; Weekly Continuing Claims 1.696 mln; Prior was revised to 1.680 mln from 1.688 mln
- The key takeaway from the report is that the persistence of initial claims below 200,000 reflects a very tight labor market, and a reluctance on the part of most companies to cut their workforce, which will continue to drive worries at the Fed about tight labor market conditions feeding into stickier wage-based inflation pressures.
- February Philadelphia Fed Index -24.3 (consensus -8.0); Prior -8.9
AMC Networks (AMCX), AutoNation (AN), and Deere (DE) will headline the earnings reports ahead of tomorrow's open.
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: January Import Prices (prior 0.4%), Import Prices ex-oil (prior 0.4%), Export Prices (prior -2.6%), and Export Prices ex-agriculture (prior -2.7%)
- 10:00 ET: January Leading Indicators (consensus -0.3%; prior -1.0%)