Closing Market Summary: Small Caps Lead Broad-Based ReboundStocks rebounded on Wednesday, reclaiming about half of their Tuesday losses, with shares of smaller, domestically focused companies showing particular strength. The small-cap Russell 2000 jumped 1.0%, finishing at a new all-time high, while the tech-heavy Nasdaq added 0.6% and the S&P 500 and the Dow advanced 0.4% and 0.3%, respectively.
The major averages opened with slim gains and extended them in a sharp move around midday, but slipped a bit in front of the closing bell.
Treasury yields remained at multi-year highs, with the benchmark 10-yr yield ticking up another two basis points to 3.10% -- its highest close since July 2011. However, unlike on Tuesday, the rise in yields didn't have a broadly bearish impact on equities. The rate-sensitive utilities (-0.9%) and real estate (-0.4%) groups finished in the red, but the nine other S&P sectors advanced.
Materials was the top-performing group with a gain of 1.2%, but consumer discretionary and consumer staples also outperformed, adding 0.8% apiece, as retailers rallied around Macy's (M 33.17, +3.24) first quarter results; the department store soared 10.8%, hitting a 15-month high, after beating earnings and revenue estimates and raising its guidance for the fiscal year.
Chipmakers were also strong, with Micron (MU 56.50, +2.49) showing particular strength after being initiated with an 'Outperform' rating at RBC Capital Markets. Micron shares rallied 4.6%, helping to push the PHLX Semiconductor Index higher by 1.4%. The top-weighted technology sector, which houses chipmakers, advanced 0.4%.
Overseas, Italy's MIB dropped 2.3% on Wednesday following the leaking of a draft proposal from the two anti-establishment parties seeking to form a coalition government. The draft reportedly advocates for procedures that would allow countries to quit the euro and for debt forgiveness from the European Central Bank. Italy's 10-yr yield surged 19 basis points to 2.13%.
The U.S. dollar climbed 0.3% against the euro to 1.1801, helping to push the U.S. Dollar Index (93.30, +0.16) up 0.2% to a five-month high.
Reviewing Wednesday's economic data, which included April Housing Starts and Building Permits, April Capacity Utilization and Industrial Production, and the weekly MBA Mortgage Applications Index:
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Housing starts decreased to a seasonally adjusted annualized rate of 1.287 million units in April (consensus 1.325 million), down from a revised 1.336 million units in March (from 1.319 million). Building permits slipped to a seasonally adjusted 1.352 million in April (consensus 1.350 million) from a revised 1.377 million in March (from 1.354 million).
- The key takeaway from the report is that single-family activity remained fairly muted. Bad weather will get some blame for the torpid activity overall, yet nothing in this report suggests prospective homeowners can expect supply-driven price relief in the near future.
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Industrial Production increased 0.7% in April (consensus +0.6%), while the March reading was revised to +0.7% (from +0.5%). Meanwhile, Capacity Utilization ticked up to 78.0% (consensus 78.4%) from a revised reading of 77.6% in March (from 78.0%).
- The key takeaway from the report is that the April increase was fueled by increased output across all three major industry groups.
- The weekly MBA Mortgage Applications Index decreased 2.7% following last week's downtick of 0.4%.
On Thursday, investors will receive several economic reports, including weekly Initial Claims, the Philadelphia Fed Index for May, and the Conference Board's Leading Economic Index for April. In addition, Walmart (WMT 86.13, +1.61) -- the world's largest retailer -- will report earnings ahead of the opening bell.
- Nasdaq Composite +7.2% YTD
- Russell 2000 +5.3% YTD
- S&P 500 +1.8% YTD
- Dow Jones Industrial Average +0.2% YTD