TheChek News Flow

Closing Stock Market Summary

The stock market opened on a weak note, undercut by rising Treasury yields and continuing growth concerns. The major indices drifter lower through the morning trade but rebounded in the afternoon from a short-term oversold condition.

The sentiment shift was fueled by price action in the S&P 500, which tested its 3,900 level at the intraday low, found support there, and pushed into positive territory by the close. The bounce was driven by a rebound in the mega cap stocks. The Vanguard Mega Cap Growth ETF (MGK), down as much as 1.9% in the morning trade, ended the day up 0.2%.

Despite the afternoon recovery, it was still a relatively weak showing for the market today. At midday, decliners led advancers by a nearly 6-to-1 margin at the NYSE and a greater than 3-to-1 margin at the Nasdaq. The margins came in somewhat by the close, but still show a strong skew towards declining issues. Decliners led advancers by a 5-to-2 margin at the NYSE and a 5-to-3 margin at the Nasdaq.

The S&P 500 sectors were led by utilities (+1.4%) and health care (+1.7%), reflecting the continued risk-off mentality. Energy (-2.3%), materials (-1.4%), and information technology (-0.5%) were the lone laggards in negative territory. Energy was dragged down by oil prices with WTI crude oil futures falling 3.3% to $86.45/bbl; materials fell on demand concerns after China locked down Chengdu (a city of 21.2 million residents) for Covid testing; and information technology was affected by weak semiconductor stocks. 

The PHLX Semiconductor Index closed down 1.9%, but it had been down as much as 4.8%. NVIDIA (NVDA 139.37, -11.57, -7.7%) logged the steepest losses after after news broke that the government is imposing a new license requirement for sales of A100 and H100 chips to China and Russia.

Growth stocks were a weak spot today after some disappointing guidance from Okta (OKTA 60.60, -30.80, -33.7%) and MongoDB (MDB 241.11, -81.75, -25.3%) and with the rise in longer dated Treasury yields. The Russell 3000 Growth Index closed with a modest loss while the Russell 3000 Value Index closed up 0.2%.

Treasury yields settled near session highs with the 2-yr note yield pushing above 3.50%, up eight basis points to 3.52%. The 10-yr note yield rose 13 basis points to 3.27%.

Looking ahead to Friday, market participants will receive the closely watched August Jobs Report at 8:30 a.m. ET. That includes Nonfarm Payrolls (consensus 300,000; prior 528,000), Nonfarm Private Payrolls (consensus 280,000; prior 471,000), Average Hourly Earnings ( consensus 0.4%; prior 0.5%), Unemployment Rate ( consensus 3.5%; prior 3.5%), and Average Workweek ( consensus 34.6; prior 34.6). At 10:00 a.m. ET, July Factory Orders ( consensus 0.2%; prior 2.0%) will be released.

Reviewing today's economic data:

• The August ISM Manufacturing Index was unchanged from July at 52.8% ( consensus 52.0%), yet that was stronger than expected. A number above 50.0% is indicative of expansion. August marked the 27th consecutive month of expansion in the manufacturing sector, although the July and August readings were the lowest since June 2020.
  • The key takeaway from the report is that it connotes a moderation in manufacturing activity that is coinciding with a welcome, and sharp, improvement in the pace of price increases for raw materials.
• The IHS Markit Manufacturing PMI rose to 51.5 in the final reading for August from 51.3 in the preliminary reading. July's final reading was 52.2.
• Initial claims for the week ending August 27 decreased by 5,000 to 232,000 (consensus 250,000) while continuing jobless claims for the week ending August 20 increased by 26,000 to 1.438 million. There were downward revisions for initial claims and continuing claims in the prior week, too.
  • The key takeaway from the report is that the low level of initial claims is indicative of a tight labor market that continues to run afoul of the Fed's effort to induce softer labor market conditions.
• Q2 productivity decreased 4.1% ( consensus -4.6%) with the revised report while unit labor costs increased 10.2% (Briefing.com consensus 10.7%) versus a 10.8% increase seen in the advance report.
  • The key takeaway from the report is that nonfarm productivity decreased 2.4% from the same quarter a year ago, which is the largest decline in a series that began in the first quarter of 1948; meanwhile, unit labor costs saw the largest four-quarter increase (9.3%) since the first quarter of 1982.
• Total construction spending declined 0.4% month-over-month in July (consensus -0.1%) following an upwardly revised 0.5% decline (from -1.1%) in June. Total private construction was down 0.8% month-over-month while total public construction increased 1.5%. On a year-over-year basis, total construction spending was up 8.5%.]
  • The key takeaway from the report is the continued downturn in residential spending, which featured a 4.0% decline in new single family construction. The latter is consistent with weak homebuilder sentiment, which has deteriorated on the back of higher mortgage rates crimping affordability for prospective buyers.
• Weekly natural gas inventories increased by 61 bcf after increasing by 60 bcf during the previous week.

Dow Jones Industrial Average: -12.9% YTD
S&P 400: -15.6% YTD
S&P 500: -16.8% YTD
Russell 2000: -18.2% YTD
Nasdaq Composite: -24.7% YTD