TheChek News Flow

Closing Market Summary: Market Pops on Inflation and Trade Headlines

The stock market traded up on Thursday, helped in part by some pleasing consumer inflation data and headlines that suggested senior officials from the U.S. and China appear headed for new discussions on trade matters.  The S&P 500 increased 0.5% while the Dow Jones Industrial Average jumped 0.6%.  It was the Nasdaq Composite, however, that led things with a 0.8% gain.  The Russell 2000 slipped 0.1%.

Those indices sported higher gains shortly after the start of trading, yet they got reined in some after President Trump tweeted the U.S. isn't under pressure to do a deal with China and that it is China who is under pressure to do a deal with the U.S.

That didn't sound like a soft negotiating style, so it caused market participants to consider the prospect that new trade talks might not produce the result everyone is hoping for, which is an agreement that avoids the further implementation of tariffs.

Even so, the stock market held up reasonably well, supported by leadership from the information technology sector (+1.2%), which was driven by a rebound in Apple (AAPL 226.41, +5.34, +2.4%) and the semiconductor stocks, and leadership from the health care sector (+1.1%).

That was a stalwart combination as those happen to be the two most-heavily-weighted sectors in the S&P 500, accounting for nearly 41% of its market value.

Gains there helped offset a relatively weak showing from the financial sector (-0.2%), which continued to get pinched by a flattening yield curve, and a lackluster showing from the consumer staples (-0.4%) and energy (unch) sectors.

Oil prices dropped 2.5% to $68.62 per barrel, pressured by a report from the IEA that global oil supply hit a record 100 million barrels per day in August and the downgrade of Hurricane Florence to a Category 2 storm from a Category 4 storm.

In other developments, both the Bank of England and the European Central Bank held policy meetings that culminated with decisions to leave their key interest rates unchanged, as expected. Turkey's central bank, on the other hand, raised its key lending rate 6.25% to 24.00% in a bid to help support the beleaguered lira.

There wasn't much corporate news of note today, although Kroger (KR 28.58, -3.15, -9.9%) stood out as a story stock.  The grocery retailer got hit hard after reporting better than expected second quarter earnings results.  The issue for investors reportedly was same-store sales that came up shy of analysts' consensus estimate.

Reviewing today's economic data, which included the August Consumer Price Index, weekly Initial Claims, and the Treasury Budget for August:

• Total CPI increased 0.2% (consensus +0.2%) in August, and core CPI, which excludes food and energy, rose 0.1% (consensus +0.2%). On a year-over-year basis, total CPI is up 2.7% (vs +2.9% in July) and core CPI is up 2.2% (vs +2.4% in July).
  • The key takeaway for the market is that there was a moderation in the year-over-year growth rates for total CPI and core CPI. That won't alter the prevailing view that the Federal Reserve is likely to raise rates two more times this year, yet the moderation is apt to be seen as a data point that could keep the Federal Reserve from tightening rates too rapidly.
• The latest weekly initial jobless claims count totaled 204,000, while the consensus expected a reading of 210,000. Today's tally was below the revised prior week count of 205,000 (from 203,000). As for continuing claims, they declined to 1.696 million from a revised count of 1.711 million (from 1.707 million).
  • The key takeaway from the report is that the four-week moving averages for initial claims and continuing claims are at their lowest level since 1969 and 1973, respectively.
• The Treasury Budget for August showed a deficit of $214.1 billion versus a deficit of $107.7 billion for the same period a year ago. The Treasury Budget data is not seasonally adjusted, so the August deficit cannot be compared to the $76.9 billion deficit for July.
  • The large, year-over-year uptick stemmed mainly from outlays for military active duty and retirement, Veterans' benefits, supplemental Social Security Income, Medicare payments to HMOs, and Social Security benefits that got pushed into August because September 1 was a non-business day and September 3 was a holiday.
  • The fiscal year-to-date deficit is $898.1 billion versus $673.7 billion at the same point in fiscal 2017.

Friday will be a very busy day of economic reporting.  The Retail Sales and Export/Import Price Index reports will be released at 08:30 ET, followed by the Industrial Production report for August at 09:15 ET, and then the Business Inventories report for July and the preliminary University of Michigan Consumer Sentiment report for September at 10:00 a.m.

• Nasdaq Composite: +16.1% YTD
• Russell 2000 +11.6% YTD
• S&P 500 +8.6% YTD
• Dow Jones Industrial Average +5.8%