Closing Stock Market SummaryCooler-than-expected CPI data sent the stock market higher today. The three main indices saw some up and down price action but ultimately closed with sizable gains. The Nasdaq and S&P 500, which breached the 4,200 level, closed just below session highs.
The moderation in both CPI and core CPI was the main driving factor for the market today. It fueled the notion that the Fed will be less aggressive with its rate-hike path and switch to a rate-cut cycle sooner rather than later. Total CPI was unchanged month-over-month and core CPI was up 0.3%.
The mega caps, growth stocks, and cyclical sectors led the way after those areas sold off heavily in recent sessions. The Vanguard Mega Cap Growth ETF (MGK), up 2.9%, closed ahead of the broader market. The Russell 3000 Growth Index (+2.7%) closed ahead of the Russell 3000 Value Index (+1.9%). The PHLX Semiconductor Index (SOX) closed up 4.3%.
S&P 500 sector performance reflected a risk-on mindset. The materials (+2.9%), consumer discretionary (+2.9%), communication services (+2.8%), and information technology (+2.8%) sectors topped the leaderboard.
The buying was broad-based with all 11 S&P 500 sectors closing in the green with gains ranging from 0.5% (utilities) to 2.9% (materials). The Invesco S&P 500 Equal Weight ETF (RSP) jumped 2.1% on the day.
Market breadth showed a strong skew towards advancing issues. Advancer led decliners by a roughly 6-to-1 margin at the NYSE and a less than 3-to-1 margin at the Nasdaq.
Pushing back against the market's notion of a policy pivot in the near future, Minneapolis Fed President Kashkari (2023 FOMC voter) said he thinks the terminal rate is 3.9%, adding that the Fed is "far far far away" from declaring victory on inflation. Meanwhile, Chicago Fed President Evans (not an FOMC voter) said he expects rates to top out at 4.0% but also said, "... if things get better more quickly, we can not raise rates quite as much..."
Treasury yields fell sharply immediately after the CPI report came out. The 2-yr note yield, which was at 3.27% just before the release, dropped to 3.08% in its wake before settling the day at 3.19%. The 10-yr note yield, which was at 2.80% just before the release, fell to 2.69% in its wake but gave back just about everything and settled at 2.79%.
Before tomorrow's open, Canada Goose (GOOS), Cardinal Health (CAH), Hanesbrands (HBI), Six Flags (SIX), US Foods (USFD), and Warby Parker (WRBY) are all set to report earnings.
Also on Thursday, market participants will receive the July PPI ( consensus 0.3%; prior 1.1%) and core PPI (consensus 0.4%; prior 0.4%) at 8:30 a.m. ET. At the same time, weekly initial jobless claims ( consensus 263,000; prior 260,000) and continuing claims (prior 1.416 million) will be released. At 10:30 a.m. ET, weekly EIA Natural Gas Inventories (prior +41 bcf) will be released.
Reviewing overnight developments:
- Total CPI was unchanged month-over-month ( consensus +0.2%), leaving it up 8.5% year-over-year versus 9.1% in June. Core CPI, which excludes food and energy, was up 0.3% month-over-month (consensus +0.5%), leaving it up 5.9% year-over-year versus 5.9% in June.
- The key takeaway from the report is that it supports the peak inflation view, which in turn supports the market's hope that the Fed will temper its aggressive rate-hike approach in coming months and ultimately transition to a rate-cut cycle in 2023, perhaps as early as the first half of 2023.
- Weekly MBA Mortgage Applications Index showed 0.2% increase versus the prior increase of 1.2%.
- June Wholesale Inventories rose 1.8% ( consensus 1.9%) versus the prior revised increase of 1.9% (from 1.8%).
Dow Jones Industrial Average: -8.3% YTD
S&P 400: -9.9% YTD
S&P 500: -11.7% YTD
Russell 2000: -12.3% YTD
Nasdaq Composite: -17.8% YTD