Closing Stock Market Summary
Today's trade started on a mixed note. There wasn't much conviction on either side of the tape early on, leading the major indices to trade near yesterday's closing levels. Stocks settled into a broad retreat, though, after market rates bounced in response to the ISM Services PMI at 10:00 a.m. ET.
The ISM Services PMI jumped to 54.5% from 52.7% and the Prices Index rose to 58.9% from 56.8%. That is a combination that will support the Fed's thinking that rates need to stay higher for longer. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, sat at 4.95% before the data, but settled up eight basis points from yesterday at 5.04%. The 10-yr note yield, at 4.25% before the data, settled at 4.29%.
Another jump in oil prices ($87.57/bbl, +1.02, +1.2%) contributed to the negative bias today. That move, along with elevated gas prices, has stirred concerns about a slowdown in discretionary spending. On a related note, several airlines sounded a cautious note today about rising jet fuel costs.
The major indices were able to climb off their worst levels in the afternoon trade, but still registered decent losses. The S&P 500 for its part closed below its 50-day moving average (4,475). A big loss in Apple (AAPL 182.91, -6.79, -3.6%) following a few negative headlines weighed heavily on the broader market. China banned government officials from using Apple devices, according to The Wall Street Journal, and the EU Commission designated Apple as one of six "gatekeepers," which will place it under a regulatory microscope.
The Vanguard Mega Cap Growth ETF (MGK) fell 1.2% while the Invesco S&P 500 Equal Weight ETF (RSP) logged a 0.3% decline. Other growth stocks were noticeably weak, too, pressured by the jump in market rates. The Russell 3000 Growth Index fell 0.9% versus a 0.3% loss in the Russell 3000 Value Index.
Nine of the 11 S&P 500 sectors closed with a loss. The information technology sector (-1.4%) saw the largest decline by a decent margin, weighed down by Apple. The utilities (+0.2%) and energy (+0.1%) sectors closed at the top of the leaderboard.
Volume remained on the light side as decliners topped advancers by a roughly 9-to-5 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq.
Nasdaq Composite: +32.5% YTD
S&P 500: +16.3% YTD
S&P Midcap 400: +7.0% YTD
Russell 2000: +6.4% YTD
Dow Jones Industrial Average: +3.9% YTD
Reviewing today's economic data:
Weekly MBA Mortgage Applications Index -2.9%; Prior 2.3%
July Trade Balance -$65.0 bln ( consensus -$68.0 bln); Prior was revised to -$63.7 bln from -$65.5 bln
The key takeaway from the report is that there was a pickup in both exports and imports that was not suggestive of any material economic weakness on a global scale, yet there are clear signs of slowing with exports down 3.5% year-over-year and imports down 4.7% year-over-year.
August S&P Global US Services PMI - Final 50.5; Prior 51.0
August ISM Non-Manufacturing Index 54.5% (consensus 52.4%); Prior 52.7%
The key takeaway from the report is twofold: services sector activity accelerated in August but prices also increased at a faster pace. The latter will be a concerning development presumably for the Fed and the Treasury market, which will be contemplating the notion of rates needing to stay higher for longer.
Thursday's economic calendar features:
8:30 ET: Weekly Initial Claims (consensus 233,000; prior 228,000), Continuing Claims (prior 1.725 mln), revised Q2 Productivity (consensus 3.7%; prior 3.7%), and revised Q2 Unit Labor Costs (consensus 1.6%; prior 1.6%)
10:30 ET: Weekly natural gas inventories (prior +32 bcf)
11:00 ET: Weekly crude oil inventories (prior -10.58 mln)