Closing Stock Market SummaryThe S&P 500 (-0.03%) finished flat on Wednesday, battling back from an early 0.8% decline after finding support at the 3900 level. The Dow Jones Industrial Average (+0.3%) eked out a closing record high, while the Nasdaq Composite (-0.6%) and Russell 2000 (-0.7%) closed lower amid profit-taking pressure.
Prior to the open, investors received retail sales and producer inflation data for January that easily topped expectations and supported the economic recovery thesis. Specifically, retail sales surged 5.3% m/m (Briefing.com consensus +0.8%), and the Producer Price Index jumped 1.3% m/m (Briefing.com consensus +0.5%) -- the largest increase since the index began in December 2009.
The initial equity reaction was negative, partly because long-term interest rates resumed their quick ascent, which weighed on the valuations of growth stocks, and partly due to a view that the recovery news might have been priced in during the month's rally. The 10-yr yield, which rose ten basis points yesterday, touched 1.33% immediately after the data but finished flat at 1.30%.
The temperance in the Treasury market likely contributed to a buy-the-dip mindset, which carried eight of the 11 S&P 500 sectors into positive territory after each started the session in the red. The energy sector (+1.5%) followed oil prices higher ($61.12/bbl, +1.03, +1.7%), and the consumer discretionary (+0.7%) and communication services (+0.5%) sectors follows behind.
Unsurprisingly, the top-weighted information technology sector (-1.0%) held back the S&P 500 amid relative weakness in its growth-stock components, including the semiconductor stocks. The Philadelphia Semiconductor Index declined 1.9%, trimming its monthly gain to 10.1%.
Shares of Verizon (VZ 56.99, +2.84, +5.2%) and Chevron (CVX 95.92, +2.79, +3.0%) were boosted by news that Berkshire Hathaway (BRK.B 245.21, -0.07, unch) disclosed new positions in the stocks last quarter. Shopify (SHOP 1425.00, -49.00, -3.3%) shares pulled back modestly despite reporting better-than-expected earnings results.
Separately, the Fed-sensitive 2-yr yield decreased two basis points to 0.10%, as the FOMC Minutes from the January meeting corroborated the central bank's dovish monetary policy stance. The U.S. Dollar Index advanced 0.5% to 90.92.
Reviewing Wednesday's economic data:
- January retail sales surged 5.3% month-month (consensus +0.8%), aided by the receipt of stimulus checks and pent-up spending activity, and more than neutralized the downward revision for December to -1.0% from -0.7%. Excluding autos, retail sales soared 5.9% month-over-month (consensus +0.7%) and more than neutralized any disappointment that might have been attached to the downward revision for December to -1.8% from -1.4%.
- The key takeaway from the report is that sales were up solidly across every retail category, offering an early sign of the added spending -- and economic recovery -- potential that is wrapped up in another round of proposed stimulus checks.
- The Producer Price Index for final demand jumped 1.3% month-over-month in January (consensus +0.5%) -- the largest increase since the index began in December 2009 -- while the index for final demand, less foods and energy, rose 1.2% month-over-month (consensus +0.2%).
- The key takeaway from this report is that producers clearly incurred higher prices in January; however, last week's Consumer Price Index showed that there wasn't any meaningful pass through to consumers. Nonetheless, there could be some angst about rising consumer prices in coming months given that the index for processed goods for intermediate demand was up 1.7% in January while the index for unprocessed goods for intermediate demand advanced 3.8%.
- Industrial production increased 0.9% m/m in January (consensus 0.6%) following a downwardly revised 1.3% increase (from 1.6%) in December. The capacity utilization rate jumped to 75.6% (consensus 74.9%) from an upwardly revised 74.9% (from 74.5%) in December.
- The key takeaway from the report is the continued strength in manufacturing output, which occurred despite a decline in the index for motor vehicles and parts attributed to a shortage in semiconductors used in vehicle components.
- The NAHB Housing Market Index increased to 84 in February (consensus 86.0) from 83 in January.
- Business inventories increased 0.6% in December (consensus 0.5%) following an unrevised 0.5% increase in November.
- The weekly MBA Mortgage Applications Index fell 5.1% following a 4.1% decline in the prior week.
Looking ahead, investors will receive Housing Starts and Building Permits for January, the weekly Initial and Continuing Claims report, the Philadelphia Fed Index for February, and Import and Export Prices for January on Thursday.
- Russell 2000 +14.2% YTD
- Nasdaq Composite +8.4% YTD
- S&P 500 +4.7% YTD
- Dow Jones Industrial Average +3.3% YTD