The stock market ended a downbeat week on a tepid note as an opening rally on Friday ultimately fizzled out. The Dow Jones Industrial Average (+0.2%) finished ahead of the S&P 500 (+0.02) and the Nasdaq Composite (+0.02). The three indices finished the week lower between 0.6% and 1.5%.
Equity indices rallied at the start of the session as positive inflation data out of China, a string of better-than-expected expected quarterly reports, and upbeat domestic data boosted investor sentiment.
The three catalysts also helped solidify the rate hike picture as above-consensus inflation data stood in contrast to persistently low inflation readings. The Producer Price Index (PPI) came in slightly ahead of estimates as PPI rose 0.3% in September (consensus +0.2%). Meanwhile, core PPI ticked higher by 0.2% (consensus +0.1%). The two readings are up a respective 0.7% and 1.2% on a year-over-year basis.
According to the CME's Fed Watch Tool, the probability of a rate hike at the December meeting has increased to 69.2% from 61.7% at the end of September. The firming rate hike picture also helped move the dollar and long-term rates higher.
The U.S. Dollar Index (98.11, +0.59, +0.60%) strengthened throughout today's session, which in turn weighed on dollar-denominated oil prices ($50.32/bbl, -$0.08, -0.2%).
The early rally reversed stating around 10:20 a.m. ET and coincided with some strengthening in the dollar, a reversal in oil, and fading gains in the financial sector (+0.5%), which had been up as much as 1.5% following some better than expected earnings results from JPMorgan Chase (JPM 67.52, -0.22), Citigroup (C 48.61, +0.14), and Wells Fargo (WFC 44.71, -0.04).
Rising treasury yields also worked to thwart the early rally. Higher-yielding sectors -- utilities (-0.6%), real estate (-0.3%), and telecom services (-0.2%) -- found it difficult to make any headway and general valuation concerns percolated with the jump in rates.
The yield on the benchmark 10-yr note rose six basis points to 1.80% as the boost in producer price inflation, the stronger than expected inflation report out of China, and waning price momentum unsettled investors.
The S&P 500 (+0.02%) finished basically flat, surrendering just about all of an initial 0.8% gain.
Five sectors finished in the green with financials (+0.5%), technology (+0.5%), and materials (+0.4%) staging the largest moves on a percentage basis.
The financial sector (+0.5%) outperformed in the wake of positive economic data, a steepening in the yield curve, and a string of above consensus quarterly reports.
Citigroup (C 48.61, +0.14, +0.3%), Well Fargo (WFC 44.71, -0.04), and JPMorgan Chase (JPM 67.52, -0.22, -0.3%) each beat analysts' estimates for the quarter. The three were up between 1.7% and 3.1% at the onset, but were unable to hold onto the bulk of those early gains as concerns about a potential slowdown in commercial lending reportedly tempered investors' enthusiasm.
In the technology sector (+0.5%), Salesforce.com (CRM 74.27, +3.64) finished higher by 5.2% after the Financial Times reported that the company is no longer interested in acquiring Twitter (TWTR 16.88, -0.91). Chipmakers also outperformed in the group as the PHLX Semiconductor Index (+0.8%) narrowed its weekly loss to 3.3%.
Department store names underperformed in the discretionary sector (UNCH) after JPMorgan cut quarterly estimates for Macy's (M 35.57, -1.27, 3.3%) and Kohl's (KSS 43.64, -1.44, -3.2%). The broader SPDR S&P Retail ETF (XRT 43.12, -0.09) also finished on a negative note.
Today's trading volume fell came in below the recent average of 862 million as 785 million shares changed hands at the NYSE floor.
Today's economic data included the PPI Report for September, the Retail Sales Report for September, Business Inventories for August, and the initial reading of the University of Michigan Consumer Sentiment Index for October:
- The Producer Price Index (PPI) for September showed a 0.3% increase in final demand prices (consensus +0.2%), led by a 0.7% jump in the index for final demand goods.
- Excluding food and energy, the index for final demand was up 0.2% (consensus +0.1%).
- Total retail sales increased 0.6% in September while sales, excluding autos, rose 0.5%. Both results were in-line with the consensus estimates.
- Total business inventories increased 0.2% in August (consensus +0.1%) after being unchanged in July.
- Sales were also up 0.2% after declining a downwardly revised 0.3% (from -0.2%) in July.
- The University of Michigan's Index of Consumer Sentiment dropped to 87.9 in the preliminary reading for October (consensus 92.4) from the final reading of 91.2 for September.
- The October reading is the second lowest level in the past two years.
Monday's economic data will include the 8:30 a.m. ET release of October Empire Manufacturing consensus 2.0). The Industrial Production (consensus 0.2%) and Capacity Utilization (Consensus 75.6%) report for September will be released at 9:15 a.m. ET.
Closing Market Summary: Indices Walk Back Gains Despite Upbeat Bank Earnings