Closing Stock Market SummaryThe last day of the second quarter ended with a punctuation point on what marked the best first half of the year for the Nasdaq Composite (+31.7%) since 1983! Mega-cap stocks took the lead at the open, held it throughout the day, and joined with a host of other stocks to finish the week and the quarter on a winning note.
The tone for today's winning session was set early when Citigroup started coverage of Apple (AAPL 193.97, +4.38, +2.3%) with a Buy rating and $240 price target. Apple surpassed a $3 trillion market capitalization today. Not to be outdone, Daiwa Securities upgraded NVIDIA (NVDA 423.02, +14.80, +3.6%) to Outperform from Neutral. Those research calls put a bid in the mega-cap stocks that strengthened following the release of the Personal Income and Spending Report for May.
That report played into the optimistic view that the U.S. economy could in fact avoid a recession. It wasn't because the report was undeniably strong; rather, it was more because it wasn't decidedly weak. Personal income increased 0.4%, personal spending jumped 0.1%, the PCE Price Index rose 0.1%, and the core-PCE Price Index, which excludes food and energy, advanced 0.3%.
Importantly, the year-over-year increase for the PCE Price Index moderated to 3.8% from 4.3% and the year-over-year rate for the core-PCE Price Index moderated to 4.6% from 4.7%. The core rate is still too high for the Fed's liking, yet the recognition that the core rate dipped from April was enough to quiet concerns for now about the Fed possibly raising rates at its next two FOMC meetings.
The CME FedWatch Tool shows an 84.3% probability of a 25-basis points rate hike in July, but only a 20.2% probability for a second rate hike at the September FOMC meeting.
The Treasury market looked placated by what it saw in the data. Yields came down immediately after the report was released at 8:30 a.m. ET. The 2-yr note yield went from 4.92% to 4.84% and settled the session unchanged at 4.88%. The 10-yr note yield dropped from 3.88% to 3.82% where it settled for the week.
The Dow, Nasdaq, and S&P 500 all closed near their highs for the session. The Russell 2000, which outperformed on Thursday, trailed the action on Friday but still logged a tidy 0.4% gain.
Today's action might have been led by the mega-cap stocks but they had plenty of company. Advancers led decliners by a better than 2-to-1 margin at the NYSE and by a roughly 13-to-9 margin at the Nasdaq. All 11 S&P 500 sectors ended the day higher, including the real estate sector (+0.5%), which enjoyed a burst of buying interest in the last half hour of trading that ferried it out of negative territory. 25 of the 30 Dow components closed higher.
The information technology (+1.8%) and consumer discretionary (+1.4%) sectors were the best performers today, led by their mega-cap constituents. The consumer discretionary sector overcame a weak showing from Nike (NKE 110.35, -3.02, -2.7%), which disappointed with its fiscal Q4 results. Altogether there were five sectors that gained at least 1.0%.
The Vanguard Mega-Cap Growth ETF (MGK) jumped 1.5% today, leaving it up 15.1% for the quarter and 36.8% for the year. The Invesco S&P 500 Equal-Weight ETF (RSP) increased 0.9%, leaving it up 3.5% for the quarter and 6.0% for the year.
- Nasdaq Composite: +31.7% YTD
- S&P 500: +15.9% YTD
- S&P Midcap 400: +7.9% YTD
- Russell 2000: +7.2% YTD
- Dow Jones Industrial Average: +3.8% YTD
Reviewing today's economic data:
- Personal income increased 0.4% month-over-month in May ( consensus 0.4%; prior revised to 0.3% from 0.4%), personal spending rose 0.1% ( consensus 0.3%; prior revised to 0.6% from 0.8%), the PCE Price Index advanced 0.1% ( consensus 0.1%; prior 0.4%), and the Core-PCE Price Index, which excludes food and energy, increased 0.3% (consensus 0.3%; prior 0.4%). On a year-over-year basis, the PCE Price Index was up 3.8% versus 4.3% in April. The core-PCE Price Index was up 4.6% year-over-year versus 4.7% in April.
- The key takeaway from the report is the understanding that the core-PCE Price Index moderated in May; however, it didn't move much, demonstrating some stickiness in this key inflation gauge for the Fed.
- The final reading for the June University of Michigan Consumer Sentiment Index checked in at 64.4 ( consensus 63.9) versus the preliminary reading of 63.9. In the same period a year ago, the index stood at 50.0.
- The key takeaway from the report is that consumers' attitude about the economic outlook has improved with an easing in inflation expectations.
- The June Chicago PMI was 41.5, up from 40.4 in May but still well below the 50.0 level that is the line between expansion and contraction.
Looking ahead to Monday, market participants will receive the following economic data:
- 9:45 a.m. ET: June IHS Markit Manufacturing PMI - Final (Prior 48.4)
- 10:00 ET: May Construction Spending ( consensus 0.4%; Prior 1.2%)
- 10:00 ET: June ISM Manufacturing Index ( consensus 47.1; Prior 46.9)