Closing Stock Market SummaryThe S&P 500 gained 0.5% on Thursday, as hopeful-sounding stimulus commentary contributed to renewed leadership in the value/cyclical/small-cap stocks. Versus the benchmark index, the Russell 2000 outperformed (+1.7%) by a healthy margin, the Dow Jones Industrial Average (+0.5%) performed in-line, and the Nasdaq Composite (+0.2%) underperformed.
Early in the day, the S&P 500 was down 0.6% despite another round of better-than-expected earnings reports and encouraging economic data, which included a 55,000 decline in weekly initial claims to 787,000 (Briefing.com consensus 860,000). Risk sentiment was ostensibly pressured by chatter that the passage of a stimulus deal might have to wait until after the election.
House Speaker Pelosi, meanwhile, noted that a stimulus deal was "just about there" after negotiating with Treasury Mnuchin several times this week. That observation prompted a relatively modest rebound that was led by the cyclically-oriented energy (+4.2%) and financials (+1.9%) sectors.
The health care (+1.5%) and utilities (+1.5%) sectors followed suit, but losses in the information technology (-0.5%), real estate (-0.8%), and consumer staples (-0.2%) sectors limited the rebound effort.
Interestingly, even before Ms. Pelosi's comments, the 10-yr yield was trending higher for the sixth straight day on burgeoning inflation expectations resulting from a large stimulus package. The upwards trajectory in rates was cited as a drag on highly-valued growth stocks, which had benefited from persistently low rates.
The 10-yr yield finished the session higher by three basis points to 0.85%. The 2-yr yield remained unchanged at 0.15% due to the Fed's stance of keeping the fed funds rate near zero for the next few years. The U.S. Dollar Index advanced 0.4% to 92.95. WTI crude futures rose 1.6%, or $0.62, to $40.65/bbl.
Highlighting some of today's earnings movers, Tesla (TSLA 425.79, +3.15, +0.8%), Coca-Cola (KO 50.68, +0.69, +1.4%), AT&T (T 28.29, +1.57, +5.9%), CSX (CSX 81.73, +3.01, +3.8%), and Dow Inc. (DOW 48.82, +0.27, +0.6%) closed higher following their results. Union Pacific (UNP 187.14, -12.34, -6.2%), however, was a notable earnings laggard.
Reviewing Thursday's economic data, which featured the weekly Initial and Continuing Claims report:
- Initial claims for the week ending October 17 decreased by 55,000 to 787,000 ( consensus 860,000) while continuing claims for the week ending October 10 decreased by 1.024 million to 8.373 million.
- The key takeaway is that this is perhaps a better take on things, as California completed its pause in processing of initial claims and reported actual unemployment insurance claims; nonetheless, initial jobless claims remain at unacceptably high levels.
- Existing home sales increased 9.4% m/m in September to a seasonally adjusted annual rate of 6.54 million (consensus 6.10 million), bolstered in part by a 34% annual increase in sales in vacation destination counties.
- The key takeaway from the report is that it reflects robust demand for existing homes. That is constraining supply even further, which is going to be a pressure point that feeds higher prices, shuts out an increasing number of first-time buyers, and bolsters the prospects for new home sales.
- The Conference Board's Leading Economic Index increased 0.7% m/m in September (consensus +0.6%) following an upwardly revised 1.4% increase (from 1.2%) in August.
- The key takeaway from the report is that the strength among the leading indicators has become somewhat more widespread, although the slower pace versus August points to a possible slowdown in recovery momentum entering the fourth quarter.
Looking ahead, investors will receive the preliminary Markit Manufacturing and Services PMIs for September on Friday.
- Nasdaq Composite +28.2% YTD
- S&P 500 +6.9% YTD
- Dow Jones Industrial Average -0.6% YTD
- Russell 2000 -2.3% YTD