Closing Market Summary: Stocks Rise on Negative Economic DataThe stock market ended the Thursday affair on a broadly higher note as participants dialed back rate hike expectations following a barrage of economic data. Today's rally also featured continued strength from top-weighted Apple (AAPL 115.57, +3.80), a rebound in crude oil futures, and another mixed performance from the Treasury complex. The Nasdaq Composite (+1.5%) settled ahead of the S&P 500 (+1.0%) and the Dow Jones Industrial Average (+1.0%).
The major averages shook weakness in the opening hour of trade as a weaker-than-expected reading of the Retail Sales Report for August stymied rate hike expectations for the coming months. The report indicated that retail sales declined 0.3% (consensus -0.1%) in August while retail sales excluding autos fell 0.1% (consensus +0.3%). Softening in discretionary spending will likely negatively impact third quarter GDP forecasts.
The Producer Price Index (PPI) for August also appeared to ease fears regarding a sooner-than-expected fed funds rate hike. The report showed that the PPI was flat in August (consensus +0.1%) while core PPI rose an in-line 0.1% over that time. The reading signaled some firming in inflation at the producer level, but also that inflation rates continue to tread below the Fed's target. On a side note, the Consumer Price Index (consensus +0.1%) is slated to cross the wires at 8:30 ET tomorrow.
Equities rallied throughout the session, reveling in diminished rate hike odds. The fed funds futures market estimates the odds of a rate hike at the September meeting at 12.0%, falling from 15.0% in the previous session. The implied probability of a rate hike at the December meeting fell to 46.2% from 52.9%. Additionally, the Bank of England failed to rock the boat when it opted to maintain its monetary policy stance. It is worth noting, however, that the central bank indicated that further easing could be on the way.
The S&P 500 (+1.0%) settled near its session high, testing resistance near the 2150 price level. All ten sectors ended in the green with telecom services (+1.1%), health care (+1.1%), energy (+1.1%), and technology (+1.7%) leading the advance. Conversely, materials (+0.6%) and financials (+0.7%) ended at the bottom of the leaderboard.
The heavily-weighted technology sector (+1.7%), outperformed as Dow component Apple (AAPL 115.57, +3.80) extended its recent winning streak. The stock rallied 3.4% after the company confirmed that it sold out of first run models of the iPhone 7 plus. Credit Suisse also increased its iPhone 7 sales estimates and restated its "Outperform" designation on the stock. Separately, the PHLX Semiconductor Index (+2.3%) outperformed as iPhone supplier Skyworks (SWKS 77.02, +4.62) rallied 6.4%. The price-weighted index sports a week-to-date gain of 4.4%.
Biotechnology settled ahead of the health care group (+1.1%), evidenced by the 1.5% gain in the iShares Nasdaq Biotechnology ETF (IBB 290.15, +4.22). In the ETF, Vertex Pharmaceuticals (VRTX 93.10, +2.98) led after Stifel raised its price target on the stock to $109 from $105. Meanwhile, Mylan Labs (MYL 41.49, +0.65) trimmed its month-to-date loss to 2.1%. The broader sector has jumped 1.1% this week, which compares to a gain of 0.9% in the benchmark index.
In the financial sector (+0.7%), Wells Fargo (WFC 46.15, -0.37) underperformed following yesterday's report that Federal prosecutors in California and New York are investigating the bank's sales practices. Conversely, MetLife (MET 44.50, +0.72) jumped 1.6% amid continued steepening in the yield curve. The broader sector erased a modest year-to-date loss and now sports a gain of 0.1% over that time.
Treasuries ended on a mixed note with the short end of the curve demonstrating relative strength. The yield on the 2-yr note fell two basis points to 0.74% while the yield on the 10-yr note finished flat at 1.70%. The spread between the 2-yr and 10-yr note expanded to 96 basis points from 89 on Friday.
Today's participation was above the recent average as more than 819 million shares changed hands on the NYSE floor.
Today's economic data included weekly initial claims, retail sales for August, PPI for August, the Philadelphia Fed Survey for September, the second quarter current account balance, Empire Manufacturing for September, Industrial Production and Capacity Utilization, and Business Inventories for July:
- Jobless claims for the week ending September 10 were 260,000 (consensus 263,000), up 1,000 from the prior week and the 80th straight week they have been below 300,000.
- Continuing claims for the week ending September 3 were 2.143 million, also up 1,000 from the prior week.
- Total retail sales declined 0.3% in August (consensus -0.1%) after increasing a revised 0.1% (from 0.0%) in July.
- Excluding autos, retail sales declined 0.1% (consensus +0.3%) after declining a downwardly revised 0.4% (from -0.3%) in July.
- Total PPI was unchanged (consensus +0.1%) after declining 0.4% in July. Core PPI, which excludes food and energy, was up 0.1% (consensus +0.1%) after declining 0.3% in July.
- Producer pricing trends are improving, yet inflation rates still remain comfortably below the Fed's comfort level.
- The Philadelphia Fed Index checked in at 12.8 (consensus 0.0) versus 2.0 in August. That marked the first time since last August that the index has registered two consecutive positive readings.
- The current account deficit for the second quarter totaled $119.9 billion while the consensus expected the deficit to hit $122.8 billion. The first quarter deficit was revised to $131.8 billion from $124.7 billion.
- The Empire Manufacturing Survey was little changed at -2.0 in September (consensus 0.0) versus -4.2 in August. The dividing line between expansion and contraction is 0.0.
- Industrial production declined 0.4% in August (consensus -0.3%), which wasn't a complete surprise, after increasing a downwardly revised 0.6% (from +0.7%) in July.
- The capacity utilization rate dropped to 75.5% (consensus 75.7%) from 75.9%.
- Total business inventories were unchanged in July (consensus +0.1%) following an unrevised 0.2% increase in June. Sales were down 0.2% after increasing 1.0% in June.
- Inventory-to-sales ratio for July held steady at 1.39
For more on these economic releases, be sure to visit Economic Calendar page.
Tomorrow's economic data will include CPI for August (consensus +0.1%) and the preliminary reading of the Michigan Sentiment Index for September (consensus 91.5), which will cross the wires at 8:30 ET and 10:00 ET, respectively. Separately, Net Long-Term TIC Flows for July will be released at 16:00 ET.
- Russell 2000: +7.9% YTD
- S&P 500: +5.1% YTD
- Nasdaq: +4.8% YTD
- Dow Jones: +4.5% YTD