Closing Market Summary: Stocks Move Modestly Higher; Dow Notches Another Record CloseThe stock market moved higher in a range-bound trade on Thursday with the S&P 500's most influential sectors--technology (+0.3%) and financials (+0.6%)--leading the charge. The Dow Jones Industrial Averaged (+0.1%) notched another record close (21,553) while the Nasdaq (+0.2%) finished in line with the benchmark index (+0.2%).
Fed Chair Janet Yellen wrapped up her semiannual testimony on monetary policy today with an appearance before the Senate Banking Committee. The highlights of Ms. Yellen's testimony--namely, her acknowledgement that the federal funds rate would not have to rise all that much further to get to a neutral policy stance--were largely found in the prepared remarks she released on Wednesday morning.
However, it's worth pointing out that Ms. Yellen stated today that it's premature to conclude that the underlying inflation trend is falling well short of the Fed's 2.0% target. In addition, the Fed chair noted that the Fed will consider the yield curve when setting rates, which created a sense that the central bank would like to see a steepening of the curve predicated on rising inflation expectations.
As it so happens, the yield curve did steepen a bit on Thursday as the Treasury market gave back a good portion of Wednesday's advance. The 2-yr yield climbed two basis points to 1.36% while the 10-yr yield jumped three basis points to 2.35%.
The steepening of the yield curve benefited the heavily-weighted financial sector (+0.6%), which typically responds well to widening spreads due to the favorable impact on net interest margins for lenders. The financial group outperformed for the vast majority of Thursday's session, but picked up even more steam in the final stretch to finish at the top of the sector standings by a comfortable margin.
Meanwhile, Apple (AAPL 147.77, +2.03) shrugged off yesterday's underperformance to advance 1.4% and help the top-weighted technology sector (+0.3%) cruise to its fifth-consecutive victory. Apple's mega-cap peer Microsoft (MSFT 71.77, +0.62) also outperformed, settling higher by 0.9%.
The health care sector (+0.1%)--which comes just after the technology and financial groups in terms of weight--was a late bloomer on Thursday, spending the majority of the session in the red, but eventually rode an afternoon biotech rally into positive territory. The iShares Nasdaq Biotechnology ETF (IBB 316.24, +2.23) settled with a gain of 0.7% following headlines that the Independent Payment Advisory Board, which was created by the Affordable Care Act to reign in Medicare costs, will not be activated.
On a related note, Senate Republican leaders released their updated version of a health care reform bill on Thursday that is aimed at bridging the gap that currently exists between centrist-leaning and more-conservative members of the GOP. However, reports indicate that, despite the revisions, the GOP still doesn't have enough votes to pass the measure.
As for the remaining sectors, the consumer discretionary (+0.1%), energy (+0.4%), real estate (+0.2%), and consumer staples (unch) groups settled in the green while the industrials (-0.1%), materials (-0.1%), utilities (-0.4%), and telecom services (-0.6%) spaces finished in the red.
In corporate news, Target (TGT 53.31, +2.44) jumped 4.8% after raising its second-quarter forecast for earnings per share and comparable sales. The positive sentiment caught on within the broader retail industry, sending the SPDR S&P Retail ETF (XRT 39.93, +0.90) higher by 2.3%.
Reviewing Thursday's economic data, which included June PPI, the weekly Initial Claims Report, and the June Treasury Budget:
- June producer prices came in at +0.1%, which is above the consensus of -0.1%. Core producer prices rose 0.1% while the consensus expected an increase of 0.2%.
- The key takeaway from the report is that producer price trends are also seeing some disinflation, which will likely keep the Fed in observation mode, as opposed to action mode, when it comes to the policy rate.
- The latest weekly initial jobless claims count totaled 247,000 while the consensus expected a reading of 245,000. Today's tally was below the revised prior week count of 250,000 (from 248,000). As for continuing claims, they declined to 1.945 million from the revised count of 1.965 million (from 1.956 million).
- The key takeaway is that a low level of initial jobless claims reflects a tight labor market.
- The Treasury Budget for June showed a deficit of $90.2 billion versus a surplus of $6.3 billion for June 2016. The Treasury Budget data is not seasonally adjusted, so the June deficit cannot be compared to the $88.0 billion deficit registered in May.
On Friday, investors will receive a slew of economic reports, including June CPI (consensus 0.0%) at 8:30 ET, June Retail Sales (consensus +0.1%) at 8:30 ET, June Industrial Production (consensus +0.4%) and Capacity Utilization (consensus 76.8%) at 9:15 ET, May Business Inventories (consensus +0.3%) at 10:00 ET, and the preliminary reading of the University of Michigan Consumer Sentiment Index for July (consensus 95.1) at 10:00 ET.
Also of note, JPMorgan Chase (JPM 93.10, +0.59), Wells Fargo (WFC 55.60, +0.43), and Citigroup (C 67.02, +0.10) will release their latest earnings reports on Friday morning before the opening bell.
- Nasdaq Composite +16.6% YTD
- S&P 500 +9.3% YTD
- Dow Jones Industrial Average +9.1% YTD
- Russell 2000 +5.1% YTD