Closing Stock Market SummaryThe stock market closed out January on a decidedly positive note. The main indices recovered all of yesterday's losses, driven by a lingering sense that the Fed may be compelled to pause its rate hikes in the near future following a pleasing Q4 Employment Cost Index and some weaker-than-expected January Chicago PMI and Consumer Confidence data.
This notion fueled a risk-on mentality that had many high-beta stocks continue their monthly outperformance. To that end, the Russell 2000 rose 2.3% versus a 1.5% gain in the S&P 500 and a 1.7% gain in the Nasdaq Composite. The Invesco S&P High Beta ETF (SPHB) also rose 2.3%.
Notably, there was a late surge of buying interest that was attributed to a Wall Street Journal article by Nick Timiraos that suggested today's Employment Cost Index report could increase the possibility of Fed officials agreeing to pause the rate hikes in the near future. The major indices closed at their highs for the day.
Mega cap stocks, which have steered gains all month, outpaced the main indices today. The Vanguard Mega Cap Growth ETF (MGK) rose 1.6% today and 10.7% in January.
Today's upside bias in the stock market was also helped along by positive reactions to some notable companies that reported quarterly results. Exxon Mobil (XOM 116.01, +2.45, +2.2%), UPS (UPS 185.23, +8.26, +4.7%), and International Paper (IP 41.82, +4.03, +10.7%) were among the standouts in that regard.
Some other post-earnings report standouts included General Motors (GM 39.32, +3.03, +8.4%) and PulteGroup (PHM 56.89, +4.90, +9.4%), which are helped propel the S&P 500 consumer discretionary sector (+2.2%) towards the top of the leaderboard, along with gains in Amazon.com (AMZN 103.13, +2.58, +2.6%) and Tesla (TSLA 173.22, +6.56, +3.9%).
Aside from consumer discretionary, the top performers were the cyclical materials (+2.2%), real estate (+1.9%), and industrial (+1.7%) sectors. All 11 sectors were able to close with a gain, but the slimmest gains were registered by the defensive-oriented utilities (+0.7%) sector.
Market breadth reflects the broad buying interest behind today's gains. Advancers lead decliners by a greater than 5-to-1 margin at the NYSE and a greater than 3-to-1 margin at the Nasdaq.
Notably, Dow components Caterpillar (CAT 252.29, -9.21, -3.5%) and McDonald's (MCD 267.40, -3.49, -1.3%) went against the grain following their quarterly reports.
- Nasdaq Composite: +10.7% YTD
- Russell 2000: +9.7% YTD
- S&P Midcap 400: +9.1% YTD
- S&P 500: +6.2% YTD
- Dow Jones Industrial Average: +2.8% YTD
Reviewing today's economic data:
- Q4 Employment Cost Index 1.0% (consensus 1.1%); Prior 1.2%
- The key takeaway from the report is that employment costs moderated in the fourth quarter, which is a step in the right inflation direction as far as the Fed is concerned, although the Fed still won't be content with the idea that the inflation problem has been solved.
- November FHFA Housing Price Index -0.1%; Prior 0.0%
- November S&P Case-Shiller Home Price Index 6.8% ( consensus 6.8%); Prior was revised to 8.7% from 8.6%
- January Chicago PMI 44.3 ( consensus 45.4); Prior was revised to 45.1 from 44.9
- December Consumer Confidence 107.1 ( consensus 108.1); Prior was revised to 109.0 from 108.3
- The key takeaway from the report is the Conference Board's acknowledgment that a reading below 80.0 for the Expectations Index often signals a recession within the next year.
Ahead of tomorrow's open, Altria (MO), AmerisourceBergen (ABC), Brinker (EAT), Humana (HUM), Johnson Controls (JCI), Peloton (PTON), Scotts Miracle-Gro (SMG), T-Mobile (TMUS), and Waste Management (WM) will headline the earnings reports.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior 7.0%)
- 8:15 ET: January ADP Employment Change ( consensus 170,000; prior 235,000)
- 9:45 ET: Final January IHS Markit Manufacturing PMI (prior 46.8)
- 10:00 ET: December Construction Spending ( consensus 0.0%; prior 0.2%), January ISM Manufacturing Index ( consensus 48.0%; prior 48.4%), and December JOLTS job openings (prior 10.485 mln)
- 10:30 ET: Weekly EIA crude oil inventories (prior 0.533 mln)
- 14:00 ET: February FOMC Rate Decision ( consensus 4.50-4.75%; prior 4.25-4.50%)
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