Closing Stock Market SummaryThe day started on an upbeat note for the stock market, but sentiment quickly shifted and the resulting retreat effort had the main indices close with a loss of at least 1.2%. General growth concerns, which had been put on the backburner to start 2023, seemed to be back in play today.
The initial positive bias, which had the S&P 500 trading above the 4,000 level, was presumably fueled by optimism about a slowdown in inflation reflected in the December Producer Price Index (PPI) (actual -0.5%; consensus -0.1%).
Any optimism that may have come from the pleasing PPI report quickly dissipated, though, as investors digested the weak retail sales and manufacturing data from December, cognizant that the Fed is likely to remain on its rate hike path.
Briefly, retail sales fell 1.1% month-over-month in December (consensus -0.8%) after falling a revised 1.0% in November (from -0.6%) and industrial production decreased 0.7% month-over-month in December ( consensus -0.1%) after decreasing a revised 0.6% in November (from -0.2%).
St. Louis Fed President Bullard (non-FOMC voter) also fueled the market's concern about the Fed remaining on its rate hike path in spite of a weakening economic backdrop. Mr. Bullard said that he would prefer that the Fed stay on a more aggressive path, according to CNBC, but he added that the prospects for a soft landing have improved.
Market participants received more official commentary on the economy this afternoon when the FOMC released its latest Beige Book at 14:00 ET. On balance, contacts generally expected little growth in the months ahead.
Today's selling efforts had the S&P 500 take out support at its 200-day moving average (3,975) close near its worst level of the day. All 11 S&P 500 sectors registered losses ranging from 0.9% (communication services) to 2.7% (consumer staples).
Just about everything came along for the retreat. The Invesco S&P 500 Equal Weight ETF (RSP) logged a 1.5% loss versus a 1.6% loss for the S&P 500 and a 1.2% loss in the Vanguard Mega Cap Growth ETF (MGK).
Treasury yields took a noticeable turn lower today, but the drop in market rates was not supportive for stocks because it was a manifestation of concerns about weaker growth which, in turn, should lead to lower earnings estimates. The 2-yr note yield fell 11 basis points to 4.09% and the 10-yr note yield fell 16 basis points to 3.38%.
- Russell 2000: +5.3% YTD
- S&P Midcap 400: +4.7% YTD
- Nasdaq Composite: +4.7% YTD
- S&P 500: +2.3% YTD
- Dow Jones Industrial Average: +0.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 27.9%; Prior 1.2%
- December PPI -0.5% (consensus -0.1%); Prior was revised to 0.2% from 0.3%; December Core PPI 0.1% (consensus 0.1%); Prior was revised to 0.2% from 0.4%
- The key takeaway from the report is that while it showed the desired slowdown in year-over-year headline and core PPI, the absolute levels remain high, so the market will want to see a continuation of this trend in the coming months.
- December Retail Sales -1.1% ( consensus -0.8%); Prior was revised to -1.0% from -0.6%; December Retail Sales ex-auto -1.1% (consensus -0.5%); Prior was revised to -0.6% from -0.2%
- The key takeaway from the report is that sales in most discretionary categories fell for the second month in a row with department store sales diving 6.6% after falling 3.2% in November.
- December Industrial Production -0.7% ( consensus -0.1%); Prior was revised to -0.6% from -0.2%; December Capacity Utilization 78.8% ( consensus 79.6%); Prior was revised to 79.4% from 79.7%
- The key takeaway from the report is that industrial production was pressured by decreases in all manufacturing categories and the November decrease was revised lower, which will invite renewed concerns about the overall strength of the manufacturing sector.
- November Business Inventories 0.4% (consensus 0.4%); Prior was revised to 0.3% from 0.3%
- January NAHB Housing Market 35 (consensus 31); Prior 31
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial jobless claims (consensus 4K)
- 8:30 a.m. ET: December Housing Starts ( consensus 1355K; prior 1427K) and Building Permits ( consensus 1370K; prior 1342K)
- 8:30 a.m. ET: January Philadelphia Fed Index ( consensus -11.0; prior -13.8)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +11 bcf)
- 11:00 a.m. ET: Weekly EIA Crude Oil Inventories (prior +18.96M)