Closing Stock Market SummaryThe new month started on a mostly downbeat note. The S&P 500 and Nasdaq closed with decent losses, weighed down by weakness in the mega cap space, while the Dow managed a slim gain. Downside momentum was somewhat limited, though, thanks to the S&P 500 finding support at its 200-day moving average (3,940) twice today.
Rising market rates were a big headwind for stocks today. The 10-yr note yield reached 4.00% earlier and settled up eight basis points at 3.99%. The 2-yr note yield rose ten basis points to 4.90%. These moves were mostly in response to the ISM Manufacturing Index this morning and comments from Fed officials.
Briefly, the ISM Manufacturing Index edged higher to 47.7% from 47.4% in January. A reading below 50% is indicative of a general contraction in manufacturing activity. The sticking point is that the Prices Index rose to 51.3% from 44.5%, marking the first price increase in four months. This price data, we would add, followed a higher-than-expected February CPI reading for Germany.
In addition, rate hike concerns were stoked by Minneapolis Fed President Kashkari (2023 FOMC voter) saying he is leaning toward raising rates further and pushing up his own policy path forecast and Atlanta Fed President Bostic (2024 FOMC voter) saying he thinks the Fed should get to 5.00-5.25% and hold there well into 2024, according to CNBC.
Negative reactions to disappointing earnings and/or guidance from the likes of Lowe's (LOW 194.31, -11.44, -5.6%), Rivian (RIVN 15.76, -3.54, -18.3%), Kohl's (KSS 27.51, -0.53, -1.9%), and Agilent Technologies (A 137.51, -4.46, -3.1%) acted as another headwind for stocks today.
Most of the S&P 500 sectors registered losses with the interest rate sensitive real estate (-1.5%) and utilities (-1.7%) sectors suffering the steepest declines. On the flip side, the energy (+1.9%), materials (+0.7%), and industrials (+0.4%) sectors were the lone standouts in positive territory, having been enthused somewhat by China reporting stronger-than-expected Manufacturing PMI and Non-Manufacturing readings for February.
Notably, small and mid cap stocks fared better than their larger peers today. The Russell 2000 (+0.1%) and S&P Mid Cap 400 (+0.3%) were among the best performers for the major indices.
- Nasdaq Composite: +8.7% YTD
- Russell 2000: +7.8% YTD
- S&P Midcap 400: +7.3% YTD
- S&P 500: +2.9% YTD
- Dow Jones Industrial Average: -1.5% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -5.7%; Prior -13.3%
- February IHS Markit Manufacturing PMI - Final 47.3; Prior 47.8
- February ISM Manufacturing Index 47.7% (consensus 47.8%); Prior 47.4%
- The key takeaway from the report is that manufacturing activity continued to contract in February, albeit at a slightly slower pace, yet it did so against a backdrop of prices increasing for the first time in four months in a move that will keep the Fed with a tightening bias.
- January Construction Spending -0.1% (consensus 0.3%); Prior was revised to -0.7% from -0.4%
- The key takeaway from the report is that new single family construction continued to decline (-1.7%), clipped by higher interest rates that are making construction projects more expensive to finance at a time when broader economic activity is slowing due in part to the higher interest rates.
Ahead of tomorrow's open, Anheuser-Busch InBev (BUD), Best Buy (BBY), Big Lots (BIG), Burlington Stores (BURL), Kroger (KR), and Macy's (M) headline the earnings reports.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Revised Q4 Productivity (consensus 2.5%; prior 3.0%) and Unit Labor Costs (consensus 1.4%; prior 1.1%), weekly Initial Claims (consensus 197,000; prior 192,000) and Continuing Claims (prior 1.654 mln)
- 10:30 ET: Weekly natural gas inventories (prior -71 bcf)
